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Monday, June 13, 2016

SBI-ETF 10-Year Gilt

 
SBI launches first fixed income ETF


Scheme will invest 95% in securities covered by Nifty 10-year benchmark G-Sec Index.
 
SBI Mutual Fund has launched its first-ever constant maturity fund, the SBI-ETF 10-Year Gilt.

Why opt for a constant maturity fund?

A constant maturity fund takes away the fund manager's risk. In normal gilt funds, fund managers take active duration calls by increasing or reducing the duration depending on their views on rates.

 

There are chances of this call going wrong. These fund manager calls can also go against your own timing calls. For instance, an investor who is expecting rates to fall invests in a gilt fund, but the fund manager may expect the rates to rise and sits on short duration papers. Since the scheme will be investing a minimum of 95% in securities covered by Nifty 10-year GSec Index, that risk is not applicable to this fund. The fund manager would also keep cash levels at the minimal to control tracking error.

 

Since this is an ETF and will be listed in the NSE, direct investment and redemption fa cility will be allowed only for authorised participants and large investors.

 

Retail investors will have to buy and sell from the stock exchange, paying additional brokerag es. There is no entry load during the NFO period, so investors participating in the NFO can avoid one leg of brokerage. However, these investors can get stuck if there is no liquidity in the secondary markets. Investors should wait till it is listed and make sure there is enough liquidity before getting in.

 

The AMC has estimated that up to 1.50% of the daily net assets will be charged to schemes as expenses. This is high for a passively managed fund and compared to other constant maturity products.

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