Many risk-averse investors prefer low-risk investment options such as debt mutual funds that invest in government securities and are less volatile in nature. But it is essential to find the right mix of asset class in your portfolio, typically with lower correlation, as it can generate better risk adjusted returns.
Investments in higher quality fixed income securities are ideal for capital preservation. Investors seek to invest in debt instruments backed by the government of India to ensure the safety of their capital. Fixed Deposits have lost its market share to saving deposits from the peak of 64% in 2015 to 58% in 2019; the trend is expected to continue due to the prevailing low interest rate for fixed deposits.
Given that, a blended investment portfolio with debt-equity allocation may experience a lesser drawdown compared to a pure equity portfolio amid unfavourable market conditions. Thus, you must diversify your investment portfolio and consider investing in debt mutual funds that passively invest in securities comprising of the Nifty 5yr Benchmark G-Sec Index. This can be a good alternative to traditional Fixed Deposits.
Motilal Oswal Mutual Fund has launched Motilal Oswal 5 Year G-Sec Fund of Fund. It is an open-ended fund of funds scheme investing in units of Motilal Oswal 5 Year G-Sec ETF.
On the launch of this fund, Mr Navin Agarwal MD and CEO at Motilal Oswal AMC said, “The launch of Motilal Oswal 5-Year G-Sec Fund of Fund is in response to growing demand from investors who do not have Demat or Trading accounts. With low correlation to equities, this Fund of Fund is ideal for investors looking for capital preservation with reduced portfolio volatility.”
Table 1: Details of Motilal Oswal 5 Year G-Sec Fund of Fund
|An open ended fund of funds scheme investing in units of Motilal Oswal 5 Year G-Sec ETF.
|Fund of Funds
|The investment objective of the scheme is to seek returns by investing in units of Motilal Oswal 5 Year G-Sec ETF. However, there can be no assurance or guarantee that the investment objective of the Scheme would be achieved.
|Rs 500/- and in multiples of Re 1/- thereafter. Additional Purchase Rs 500/- and in multiples of Re 1/- thereafter.
|Rs 10/- per unit
|Mr. Abhiroop Mukherjee
|Nifty 5 yr Benchmark G-sec index
|September 24, 2021
|September 30, 2021
(Source: Scheme Information Document)
The investment strategy for Motilal Oswal 5 Year G-Sec Fund of Fund will be as follows:
Motilal Oswal 5-Year G-Sec Fund of Fund follows a passive investment strategy and will predominantly invest in units of Motilal Oswal 5-Year G-Sec ETF.
The scheme aims to replicate the performance of the Nifty 5 Yr Benchmark G-Sec index and generate returns by investing in the underlying scheme by minimizing tracking errors. The underlying scheme is an exchange traded fund that invests in debt securities backed by the government under the Nifty 5 yr Benchmark G-Sec Index.
The endeavour is to achieve the scheme’s investment objective, i.e. to provide returns closely corresponding to the returns of the underlying scheme.
About the benchmark
The ‘Nifty 5 yr Benchmark G-Sec Index’ is a single bond index that measures the performance of the most liquid Government of India bond in the 5 year maturity segment. The index is reviewed on a monthly basis with a data cut-off of T-9 working days and effective on first working day of the month (T).The index consists of constituents 5.15% GS 2025 and it is computed using the total return methodology.
The eligibility for bonds to be considered under this index are all the bonds issued by Government of India (Excluding special bonds, FRB, IIGS) with residual maturity between 4 – 6.5 years as on index effective date. Eligible bonds with traded volume of 1.25x of the existing bond will replace the existing bond.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation of Motilal Oswal 5 Year G-Sec Fund of Fund
|Indicative Allocation (% of assets)
|Units of Motilal Oswal 5 Year G-Sec ETF
|Units of liquid/ debt schemes, Debt, Money Market Instruments, G-Secs, Triparty repo, Reverse Repo, units of Liquid and Debt schemes of Motilal Oswal Mutual Fund.
(Source: Scheme Information Document)
Who will manage Motilal Oswal 5 Year G-Sec Fund of Fund?
Mr Abhiroop Mukherjee will be the dedicated fund manager for this scheme.
Mr Abhiroop Mukherjee is Associate Vice President – Debt and Money Market at Motilal Oswal Asset Management Company Ltd. He has over 13 years of experience in the debt and money market instruments securities trading and fund management and his qualifications are B.Com (Honours) and PGDM (Finance). Prior to this, he was associated with PNB Gilts Ltd. – Assistant Vice President – Debt and Money Market Instruments.
The other schemes Mr Mukherjee manages are Motilal Oswal Ultra Short Term Fund, Motilal Oswal Liquid Fund, Motilal Oswal 5 Year G-Sec ETF and for debt component Motilal Oswal Focused 25 Fund, Motilal Oswal Midcap 30 Fund, Motilal Oswal Multicap 35 Fund, Motilal Oswal Long Term Equity Fund, Motilal Oswal Dynamic Fund, Motilal Oswal Nasdaq Fund of Fund, Motilal Oswal Equity Hybrid Fund, and Motilal Oswal Multi Asset Fund.
Fund Outlook – Motilal Oswal 5 Year G-Sec Fund of Fund
Motilal Oswal 5 Year G-Sec Fund of Fund aims to passively invest in securities of the underlying scheme Motilal Oswal 5 Years G-Sec ETF and track the benchmark index.
This scheme offers investors an opportunity to invest in the most liquid G-sec in the 5 year segment. Nifty 5 yr Benchmark G-Sec with its low correlation with equities, offers diversification opportunity that help investors reduce the volatility of the portfolio overall.
With no lock-in, indexation benefit, and historical higher pre & post tax returns over Fixed Deposits, the Nifty 5 yr Benchmark G-Sec Index can be good alternative to traditional Fixed Deposits.
Although the underlying scheme invests in G-Secs backed by the government, which immunizes the scheme from any default risk, it is still prone to interest rate risk, inflation risk, and liquidity risk.
Motilal Oswal 5 Year G-Sec Fund of Funds is suitable for investors looking for long-term capital appreciation by investing in G-Secs and bonds backed by the government. You must ensure a moderate risk appetite and a long investment horizon of up to 5 years.
This article first appeared on PersonalFN here