Mumbai: SBI Mutual Fund, amongst India’s leading fund house today announced the launch of its first-ever Fixed Income ETF, SBI-ETF 10 Year Gilt, an open-ended exchange traded scheme. ETFs, in addition to being cost effective, offer liquidity, portfolio diversification and above all provide transparency.
The scheme would invest up to a minimum of 95 per cent in securities covered by the Nifty 10 year benchmark GSec Index, which have a medium to high risk profile, and residual up to 5 per cent in Money Market instruments including CBLO, which have a low risk profile.
The investment objective of the SBI-ETF 10 Year Gilt is to provide returns that closely correspond to the total returns of the securities as represented by the underlying index, subject to tracking error.
Speaking on the occasion, Mr. Navneet Munot, CIO, SBI Mutual Fund said: “We are happy to launch our first ever fixed income ETF – SBI-ETF 10 Year Gilt. The 10 year gilt segment is one of the most liquid fixed income segments in the Indian debt market. The ETFs too, owing to low costs, occupy unique position in the investment landscape and are listed on the stock exchanges.”
The fund manager would rebalance the portfolio, based on the fresh issuance of a new 10 year G-sec. SBI-ETF 10 Year Gilt may invest in derivatives at the time of portfolio rebalancing, albeit for a short period of time. The exposure of the Schemes in Derivative instruments shall however, be restricted to 5 per cent of the net assets of the Scheme. For more information on the asset allocation, please refer to the Scheme Information Document.
The changes in interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of bonds fall and vice versa. Equity might be negatively affected as well, in a rising interest rate environment. A well-diversified portfolio therefore would help mitigate this interest rate risk.
ETFs, being a passive investment carry lesser risk as compared to active fund management. The portfolio follows the index and therefore the level of stock concentration in the portfolio and its volatility would be the same as that of the index, subject to tracking error. Thus there is no additional element of volatility or stock concentration on account of fund manager decisions.
The fund manager would endeavour to keep cash levels at the minimal to control tracking error.
The Scheme would take no active calls and manage the fund by tracking the underlying index. The Scheme will track Nifty 10 year Benchmark G-Sec Index and will use a “passive” or indexing approach in its endeavour to achieve scheme’s investment objective. Unlike other funds, the scheme will not try to “beat” the market it track and do not seek temporary defensive positions when market decline or appear overvalued.
Since the scheme is an exchange traded fund, the scheme will only invest in the securities constituting the underlying index. However, due to changes in underlying index the scheme may temporarily hold securities which are not part of the index. These investments which fall outside the underlying index as mentioned above shall be rebalanced within a period of 30 days.
The units of the SBI-ETF 10 Year Gilt would be available in the Dematerialized (electronic) mode. The applicant under the Scheme will be required to have a beneficiary account with a Depository Participant of NSDL/CDSL and will be required to indicate in the application the DP’s name, DP ID Number and beneficiary account number of the applicant with the DP.
The units of the SBI-ETF 10 Year Gilt can be bought / sold on all trading days on the National Stock Exchange of India Limited where the scheme is proposed to be listed. SBI-ETF 10 Year Gilt would also offer units for subscription / redemption directly with SBI Mutual Fund in creation unit size to Authorized Participants / and Large Investors, on applicable NAV prices on all Business Days on-going offer period.
The NFO period for SBI-ETF 10 Year Gilt starts from June 02, 2016 to June 08, 2016. The scheme, thereafter, reopens for on-going subscription from on or before June 22, 2016. No Entry or Exit Load is applicable.
The minimum application amount is INR 5,000 in multiples of INR 1 thereafter during the NFO period. The benchmark for this scheme is Nifty 10 year Benchmark G-Sec Index.
The Fund Manager for SBI-ETF 10 Year Gilt is Mr. Mahak Khabia. Mr Khabia, armed with B. Com, MBA – Finance, FRM, CFA, joined SBI Funds Management Private Limited as a Dealer – Fixed Income in 2014, and has over six years of experience in the capital market.
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