Nivesh Lakshya Fund is timing and interest-rate agnostic, says Prashant Pimple of Nippon India MF

Nippon India Nivesh Laksya Fund has caught the imagination of many individual investors. Many of them want to know the details of this long-term gilt fund. Most mutual fund advisors ask their clients to stay way from long-term debt funds, as these...

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Nippon India Nivesh Laksya Fund has caught the imagination of many individual investors. Many of them want to know the details of this long-term gilt fund. Most mutual fund advisors ask their clients to stay way from long-term debt funds, as these schemes are extremely sensitive to interest rate changes and one has to time the entry and exit in them to maximise returns. What is even more remarkable is that investor are asking about a risky long-term product at a time when everyone has turned extremely risk averse. Shivani Bazaz of spoke to Prashant Pimple, Senior Fund Manager, Nippon India Mutual Fund, to find out how the fund house view the situation. She also discussed with him about his interest rate outlook and his take on debt mutual fund category that has been going through a rough phase lately.

Many investors seem to be extremely curious about Nippon India Nivesh Lakshya. We regularly get queries from readers asking about the scheme. Even mutual fund advisors say they get several queries. What has been your experience? What is your sales force telling you?
The concept and investment strategy of Nivesh Lakshya is based on cashflow and compounding rather than returns. This is a very novel concept in mutual fund space which gives the investor an option of regular annuity for a longer period of time with exposure only in Government of India securities. This fund is based on Safety, Liquidity and Transparency - the three important pillars of any long-term investing. We are communicating the same things to investors and they find this option interesting..

  • 16.55%Annualized Return for 2 year
  • >5 yearsSuggested Investment Horizon
  • N.ATime taken to double money
  • 1.96%Annualized Return for 3 year
  • >3 years Suggested Investment Horizon
  • 9.5 YearsTime taken to double money

Nippon India Nivesh Lakshya Fund has offered around 13% returns in one year. The returns are not extraordinary, considering many toppers in other debt mutual fund categories have offered better returns. Then what explains the extra interest in the scheme?
As explained before we are not offering this fund on the basis of returns at all but on the basis of regular tax-effective cashflows to investors based on investments only into Government of India Securities (GSecs).. So, it is the potential of the product to deliver regular tax effective cashflow along with asset class safety that encourages the investors the most in this fund. Nonetheless, the returns have also been competitive as compared to other similar investment options available in the market.

Most investment advisors do not encourage retail investors to invest in long-term debt schemes because of the extreme interest rate risk in these schemes. Is that attitude changing?
You are right. Long-duration products will have high volatility in the short term due to interest rate risk. Having said that, these products have delivered attractive returns in the long term. Investors would have to come in with the right expectations. Nivesh Lakshya is actually not being offered in the similar space. We have positioned this fund to provide tax-efficient,, regular cashflows with fair amount of visibility of returns over the longer term.

In the last three months, the inflows into long duration schemes have increased many folds. Do you think this is because of emerging investor interest in these schemes and the returns posed by them?
Yes, investors have invested decent amounts in such funds over last couple of months. The yields in the longer end of the curve is attractive in the current context of lower interest rates. The 10-year G-Sec yield is 6%, when the short term rates are around is 3.75-4%. Even FD rates have been lowered. Along with relatively attractive yields, the safety of the asset class and the past returns may be reasons for the heightened interest.

Debt mutual funds have been hit by multiple issues ranging from downgrades, defaults, closure of schemes, and so on. What is your outlook for debt mutual funds?
Debt mutual funds consist of several products – ranging from extremely short term to very long-term products. Similarly, in terms of the asset class, they vary from investments only into Government Securities to taking exposures in corporate credits. Credit-oriented funds, which account for a small percentage of the overall fixed income assets, had come, and continue to be, under stress due to the challenging environment, prevailing since the IL&FS episode that happened in 2018. High-grade funds, on the other hand, had done very well – they have delivering attractive returns. In the near term, we expect investor preferences to be biased towards safety and hence, high-grade funds would be the primary port of call. However, once the current environment becomes better, slowly investors would start considering high-yield funds too.

Who should invest in Nippon India Nivesh Lakshya Fund. You say the maximum investment horizon for your scheme is 10 years. What is the minimum horizon?
The fund would be suitable for any type of investor – be it retail, High Networth Individuals or even institutional investors, provided the time horizon of investments is reasonably long term – at least 5 years, if not more. Investments can be made for very long-term as well, up to 25 years.

Timing is considered a crucial factor while investing in long-term debt schemes. One should get out before the rates start going up. What is your interest rate outlook? Is there still room for new investors to make money in these schemes?
Nivesh Lakshya fund is a timing and interest rate view agnostic fund. The fund does not take any interest rate view and cash calls to manage duration. It remains totally invested in the said asset class all the time. For investors, as long as they are invested for the longer term, interest rate movements do not matter much. If interest rates go up, the cash flow we get from our investments in Government of India Securities (the coupons) would get reinvested at higher rates, to negate the interest rate risk. Reinvestment Risk and Interest Rate Risk tend to cancel out each other, over reasonably long-terms. Hence, investors need not time the markets in this product.

From an active fund perspective, we expect interest rates to remain low till the time we are in the current crisis and economy is grappling with the after-effects of this crisis. We expect more rate cuts to come in the near future before we see an uptick in rates.

What are the extra precautions investors should take before investing in a long-term debt scheme?
Investors should strictly come in with a long-term investment horizon, to efficiently meet the investment objectives. In the short term, these funds will be volatile; investors have to bear that in mind.

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