SBI Mutual Fund on December 12, 2022 announced the launch of SBI Long Duration Fund.
This is an open-ended debt scheme that seeks to generate regular income in the long term by
predominantly investing in debt and money market instruments, such that the Macaulay Duration of the portfolio is greater than seven years, i.e., a relatively high interest rate risk and a relatively low credit risk.
The primary objective of such long duration fund is to generate optimal returns consistent with moderate levels of risk.
Incidentally, a lot many mutual fund houses have launched new fund offerings (NFOs ) in long duration funds in the wake of the hike in repo rates by the Reserve Bank of India (RBI).
RBI has hiked the repo rate by 190 basis points (bps) in the past three monetary policy committee meetings. The first hike was to the tune of 40 basis points in May, which was followed by another 50 bps hike in June. The RBI again raised the repo rate by 50 basis points in August and then again by 50 basis points in September. Considering the recent hike of 35 basis points, the total hike in repo rates come to 225 basis points.
Says DP Singh, deputy managing director and chief business officer, SBI Mutual Fund: “The policy rate cycle is closer to peak and there is expected moderation in inflation levels. The forward looking estimates on positive real returns make a good case of locking in sovereign yields at current levels. Our offering, SBI Long Duration Fund, will invest predominantly into government securities of longer tenure and money market instruments following a roll down strategy, with 7 years Macaulay Duration as the floor for reset.”
According to Singh, investors can benefit by investing in such a high quality portfolio of government securities locking in yields at prevailing levels where the duration of the fund is in line with their investment goals.
“As compared to traditional investment avenues with a similar maturity, this fund also helps in reducing reinvestment risk while offering tax-efficient returns due to indexation benefit,” Singh adds.
The minimum application amount required is Rs. 5,000 and in multiples of Re. 1 thereafter. The benchmark of the scheme is CRISIL Long Duration Fund AIII Index.
