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The yields on government securities (G-Sec) have been increasing over the last few months. When the Reserve Bank of India (RBI) further increased interest rates earlier this month, it was clear that a stricter regime was in the offing.
The 10 year G-Sec’s yield has risen by almost 1.5 percentage points in the last four months. With interest rates likely to head up in the short term, it may be an opportune time to invest a portion of your surplus in long-term debt schemes offered by mutual funds.
This will help you lock into higher interest rates prevailing in the debt markets.
In this light it may be worthwhile, considering HDFC has launched its Capital Protection Oriented Fund – Series I - September 2013.
The fund is open for subscription till the end of this month.
Safe investment
Capital-Protection-Oriented schemes may be a good option to consider for investors looking largely for safety of their investments and without high expectation of returns.
Being close-end funds, these schemes have a specified lock-in period (three years in this case) before which they cannot be redeemed. While Capital Protection schemes assure protection of principal, they do not guarantee returns.
However, given the high debt slant, the recent uptrend in interest rates may offer a good opportunity to lock into highly rated instruments at attractive rates.
The units will be listed on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Investors will have ample liquidity and would be able to redeem their units quickly and efficiently in case of urgent needs.
The minimum investment required in the scheme is Rs 5,000 and in multiples of Rs 10 thereafter. The fund will invest not more than 25 per cent of its assets in equity and related instruments such as derivatives. This is likely to provide a fillip to the scheme’s returns. The three-year lock-in will help the fund manager take more prudent and medium-term calls rather than be at pressure to take short-term decisions.
The scheme is expected to invest at least 75 per cent of its assets in debt instruments. The fund mandate allows investment in debt instruments such as G-Secs, corporate bonds and money market instruments - commercial papers, commercial and treasury bills.
It has the flexibility to invest up to 100 per cent of its assets in debt instruments. This will help the fund hedge against volatility in the equity markets. The scheme has been rated AAA by ICRA. This indicates highest safety regarding timely receipt of interest from the investments made by the scheme.
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