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Motilal Oswal MOSt 10-Year Gilt Fund (MOST10)



Interest rates seem to be nearing a peak in India. It throws open opportunity to invest in long-term bond funds, say experts.

Motilal Oswal Asset Management Company has unveiled Motilal Oswal MOSt 10-Year Gilt Fund (MOST10) to try to make the most of this opportunity. This is an open-ended debt mutual fund scheme that will invest in government securities.

The fund manager invests 90% to 100% of the money in 10-year benchmark government securities. The fund manager can invest up to 10% of the money in government securities maturing in 7-12 years. The fund will be a passively managed fund. It can be seen as a vehicle for investors trying to benefit from interest rates. Most10 does away with the fund manager risk – the possibility of fund manager taking a wrong bet on government securities. Instead, it will invest in the most liquid security among government securities, where there will be little default risk. The NAV movement of the scheme will be married to the price movement of the benchmark 10-year government security.


Bond prices and interest rates share an inverse relationship. When interest rates fall, bond prices move up and when interest rates rise, bond prices fall. Typically, a fund manager of an actively managed gilt fund will keep the average maturity of the fund low when interest rates are rising. The average maturity goes up when the fund manager of an actively managed fund is expecting the rates to fall. If you are expecting interest rates in the economy to move down, Most10 can be a good vehicle to take advantage of the possible rally in the bond market. The key risk will be rising interest rates, as the fund manager can do little in this passively managed fund.


The proposed expense ratio of the fund is 0.99%. It accepts a minimum investment of . 10,000. If you choose to sell within three months from the date of allotment of units, an exit load of 0.5% will be charged. The NFO closes on December 5.

You can consider this fund as an investment in long-term government securities with no fund manager risk, especially at a time when interest rates are nearing their peaks.

Investment in this fund will be subjected to the risk of interest rates moving up. If that happens, prices in the bond market will fall and investors will suffer losses.
 

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