Reliance Mutual fund has launched a new debt fund offer, Reliance Nivesh Lakshya Fund, which will invest in long-dated bonds. The NFO, which opened on Monday, will close on 2nd July. This is an open-ended fund and hence will reopen to investors on 13th July.
Long-dated bonds are highly sensitive to interest rates. They took a beating over the past year as interest rates rose sharply. Investing in the fund now will essentially be a contrarian bet – that interest rates will resume a downward trend.
What will the fund invest in
As mentioned above, Reliance Nivesh Lakshya Fund will invest in long-dated bonds or bonds maturing over a long period. These bonds typically carry slightly higher interest rates than their shorter-term counterparts but are more sensitive to interest rate movements. A rise in interest rates causes the value of such bonds to fall and vice versa. Reliance Nivesh Lakshya can invest in both government and corporate bonds. However, government bonds play a major role in the long-dated bond market.
Reliance Nivesh Lakshya Fund will maintain a portfolio of Macaulay Duration of more than 7 years. In general, higher the Macaulay Duration, higher the interest rate sensitivity. Interest rates in India in the context of bonds are measured by ‘yields.’ Bond yields in India sharply reversed course after dipping to historic lows in August 2017.
The fund will be benchmarked against the Crisil Long Term Debt Index. The yield to maturity on the index was 8.66% as on 1st June 2018. It will be managed by Prashant Pimple who manages Reliance Dynamic Bond Fund, Reliance Income Fund and other bond schemes of Reliance AMC. He will be assisted by Kinjal Desai.
NFO Period: 18th June to 2nd July
Benchmark: Crisil Long Term Debt Index
Options: Growth, Dividend Payout, Dividend Reinvestment
Minimum Investment: Rs 5,000