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Reliance MF’s Nivesh Lakshya Fund Gives Investors An Opportunity To Lock-in At Higher Yields

The recent spike in interest rate spells good news for long-term debt investors seeking to realise distant goals

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Looking to lock-in on the recent spike in interest rates? Check long-haul debt funds. The 10-year g-sec yield has spiked up to 7.94 percent from about 6.5 percent a year ago. Longer term government papers are yielding even higher returns of about 8.1 percent. For long-term debt investors, this spells an opportunity.

Of course, you have to hold on to your debt funds till maturity, and not exit from the fund when there is a fall in interest rates. On the long-term fixed income side, there are investments like the Public Provident Fund and tax-free bonds which means less choices for investors.

Reliance MF seeks to fill the gap in this product category and is launching Reliance Nivesh Fund, a tax-efficient debt product that aims to capture the prevailing long-term yields by investing in 25 to 30 years Government Securities (G-Sec) for attaining long term goals for investors.

So, if you have really long-term goals such as preserving your money earned or leaving wealth for your children and grandchildren or even seeking to send your child for an Ivy League education, a long-term debt fund with underlying securities with a duration of 28 years could be your answer.

Reliance Nivesh Lakshya Fund fund will follow a passive investment strategy. That is, it will buy a long-term dated paper that matures in 28 years and hold it till maturity. The fund will earn an interest every six months from the paper. When the papers mature after 28 years, the fund will receive the principal amount.

Thus the fund will earn the current yield prevalent in the markets. At present, the yields for a 28 year paper is hovering around 8.1 percent levels or thereabouts, which is reasonable. Post taxes and expenses, an investor could see a tax-free yield of about 7 percent.

If the fund is held till maturity, it would not be subjected to interest rate movements in the economy. Debt fund NAVs can swing to interest rate movements, particularly long-term debt paper. So, if rates rise, debt fund NAVs will fall and vice versa.

However, investors have to hold such funds for the really long-term haul to capitalize on the fixed-income accrual strategy of the fund.

This fund is highly liquid. However, this is a really long haul fund and investors will be able to gain from the accrual potential of the fund only if they stay the course for the next 15-20 years.

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