- Date : 14/12/2022
- Read: 3 mins
A look at long-duration funds and the new launches by Axis Bank and SBI MF
Long-duration mutual funds invest in a bond portfolio comprising long-duration bond instruments. This portfolio structure makes these funds long-term, with a duration of over seven years. Investments are made in good quality long-term instruments, like government securities. These investments are held for their maturity duration, thereby earning interest on them.
With the RBI hiking interest rates by a total of 225 basis points since May 2022, investors are looking at fixed-income investments as an attractive option. Locking in on long-term bonds at the current interest level is seen as a good investment strategy.
The New Offering from Axis Bank and SBI
The Axis Long Duration Fund is being offered between 7 and 21 December 2022. The minimum investment in the fund is Rs 5,000 and the face value of the unit is Rs 10. There are no entry and exit loads in this scheme. The benchmark index of this scheme is the Nifty Long Duration Debt Index A – III.
The fund managers for this fund scheme are Devang Shah, Kaushtubh Sule and Hardik Shah.
SBI Long Duration Fund is almost identical to the Axis Long Duration Fund in most aspects. The NFO remains open between 12 and 20 December 2022. Its minimum investment is Rs 5,000 and the NAV is Rs 10. The fund is using the CRISIL Long Duration Fund AIII index as the benchmark. The fund will be managed by Rajeev Radhakrishnan.
Do Long-Duration Funds Fit into Your Investment Strategy?
As this type of fund invests largely in bonds, the cyclical pattern of interest rates becomes significant. The fund manager must actively manage the portfolio, by expanding the portfolio duration when interest rates fall. Inversely, when interest rates rise the portfolio duration is reduced to cash in on the high returns. The balancing between interest rate and duration involves close monitoring and credit evaluation of the money market.
Through these funds, you can enjoy the benefit of high-interest rates by locking in investments for the long term. The underlying instruments are sensitive to interest rate changes. The bond value decreases with an increase in the interest rate and vice versa.
For long-term investors, these funds offer an alternative to other long-term fixed-income investments like PPF. However, long-duration funds are susceptible to interest rate pressures and it is not ideal for investors who look to make a profit from money market swings. In fact, short-term investments in a rising interest scenario can lead to losses for the investor. On the other hand, long-term investments made regularly can enable investors to see out temporary interest rate fluctuations and volatility.
Your investment plans in long-duration funds should be finalized after a review of your existing investments and portfolio. If there is room for a new long-term fund investment with minimum risk, these new schemes by SBI and Axis Bank are worth consideration.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.