For investors interested in fixed income, SBI Mutual Fund has brought a new scheme that may provide more benefits compared to Fixed Deposit. SBI MF on Saturday (December 10) announced the launch of the SBI Long Duration Fund, which is an open-ended debt scheme which will seek to generate regular income in the long term by predominantly investing in debt and money market instruments.
However, there is no assurance or guarantee that the investment objective of the scheme would be achieved. Investors should note that in the case of Fixed Deposit, the safety of deposits up to Rs 5 lakh is guaranteed by RBI’s Deposit Insurance Guarantee.
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“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. 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,” D P Singh, Deputy MD & Chief Business Officer, SBI Mutual Fund said.
“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,” he added.
SBI Long Duration Fund: Application Amount and Fund Manager
The minimum application amount required for SBI Long Duration Fund is Rs. 5,000 and in multiples of Rs. 1 thereafter. Rajeev Radhakrishnan, CIO – Fixed Income, will be the fund manager of the debt portion of the scheme with Mohit Jain the dedicated fund manager for overseas securities. The benchmark of the scheme is CRISIL Long Duration Fund AIII Index.
SBI Long Duration Fund: NFO dates
The New Fund Offer (NFO) will open on December 12 and close on December 20, 2022. The mutual fund units will be allotted o December 21, 2022.
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SBI Long Duration Fund: Risk
The SBI Long Duration Fund will have a relatively high-interest rate risk and moderate credit risk.
SBI Long Duration Fund Strategy
According to SBI MF, the scheme seeks to invest in government securities which can be an ideal solution for investors looking to invest in a reasonable credit quality portfolio and have a longer investment horizon. Investors may benefit by locking in at prevailing yields by investing in this Scheme where the duration is aligned with their investment goals.
SBI Long Duration Fund: Indexation benefit
SBI MF said that investors with an investment horizon of greater than 3 years can avail of Indexation
benefits for better tax-efficient returns. Being an open-ended fund, the scheme would provide flexibility to investors to withdraw their investments anytime, at the prevailing repurchase price.
SBI Long Duration Fund: Is it better than SBI FD?
SBI MF said that most of the traditional investment products score less when it comes to Liquidity, Tax efficiency & Investment caps. Where PPFs have an investment limit of 1.5 lakhs per annum other products like Tax-free bonds may have liquidity challenges and no incremental supply.
“SBI Long Duration Fund is relatively better placed in terms of Liquidity and Tax efficiency compared to other traditional investment products. Considering the current yields, for investors with longer investment horizon, post-tax returns for SBI Long Duration Fund is more advantageous,” SBI MF said.
The returns from SBI long-duration fund will be market-linked while the SBI FD rates for, say, a five-year tenure are fixed at 6.40% and 7.10% in the case of FD. The returns from SBI Tax-Free Bonds are estimated to be around 5.29%.
Compared to FIxed Deposit, SBI Long Duration Fund scores better as it comes with 20% post-indexation benefit after three years while SBI FD interest is taxed at the slab rate.
