BNP Paribas Government Securities Fund

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BNP Paribas Government Securities Fund Invest in a gilt fund such as this only if you already have a diversified portfolio of bond funds

 

 

FEATURES:

 

It is an open-ended debt fund with a sole focus on having a government securities exposure.

FOR WHOM:

 

With a Rs 5,000 minimum investment condition, the NFO (new fund offer) can be considered for investment purpose by existing debt investors seeking an additional debt market sectoral exposure to government securities.

NFO PERIOD:

 

The fund will remain open for subscription from April 18 to April 30. The mutual fund could close it a day earlier on April 29.

ASSET ALLOCATION & BENCHMARK:

 

The fund's scheme information document (SID) states it will invest 65-100 per cent in government securities issued by central or state governments as well as treasury bills. Interestingly, 0-35 per cent allocation window is kept open for investments in units of other gilt (government securities-oriented) funds in addition to units of liquid funds and CBLO (money market instrument). The fund's benchmark is I Sec Composite Gilt Index.

 

CHARGES:

Annual recurring charges will be to the highest allowed by Sebi for such funds, 2.25 per cent. The highest limit will be lower at 2.0 per cent if you opt for the direct plan, which you should if you are not investing through a distributor or an agent.

This is the eighth gilt fund NFO since December last year launched by mutual funds that didn't already have a gilt fund among their debt product offerings. Six of them were medium to long-term gilt funds and two were short-term gilt funds. 

All of them have dangled the carrot of returns being higher for investors as there is an expectation of falling interest rates that will benefit gilt funds and long-term debt funds the most. A performance analysis based on April 22 NAVs from Capitaline NAV database reveals the average two-month returns of 45 medium to long-term gilt funds was 1.85 per cent, not better or worse than the average two-month return of 1.84 per cent of 78 income funds and average two-month return of 1.87 per cent of 46 short-term income funds. Over the long term, gilt funds tend to slag because of their restrictive investment universe of G-secs. If you are a medium to long-term investor, you can not efficiently play the timing game of when to exit before the tide turns. It is a risky game. It is, therefore, better to invest in a medium-term, long-term or a dynamic bond fund that invests in all types of debt securities, such as corporate debentures, bank CDs and G-secs. Invest in a gilt fund such as this only if you already have a diversified portfolio of bond funds and short-term debt funds.

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