New Delhi, Nov 15: LIC Mutual Fund has joined the fray with its open-ended government securities fund. The asset management company launched the initial offer on November 15, which will remain open till November 29. Th earliest closing for the scheme is November 22. The fund will re-open for sale and redemption of units in mid-December. This is the second scheme from LIC MF in the current year after the launch of its open-end bond fund in May, 1999.The minimum subscription in the LIC Government Securities Fund is pegged at Rs 10,000 with further investments in multiples of Rs 1,000. The AMC has pegged a minimum target of Rs 1 crore during the initial offer. The units are available at par with no entry load as the initial issue expenses will be borne by the AMC. The gilt fund offers a dividend plan and a growth plan.
The scheme provides tax-breaks under sections 54EA and EB. Tax concessions under the two sections require a lock-in on investments for three years and seven years, respectively. The funds offers systematic investment and withdrawal plans to investors. However, the fund is silent on cheque writing facility, allowed by RBI for gilt funds in the recent credit policy.
Currently, there are 10 gilt funds available to investors, including those from Unit Trust of India, Dundee and Birla AMCs. These funds together command a corpus of over Rs 1000 crore. Kotak Mahindra AMC was the first mutual fund to launch a 100 per cent gilt fund in December last year. The concept of gilt funds caught the fancy of AMCs after the government allowed non-government provident funds, super annuation funds and gratuity funds earlier this year to invest in 100 per cent gilt funds. PFs have to invest up to 40 per cent of their corpus in government (central and state) securities while another 40 per cent is to be invested in PSU debt. The remaining 20 per cent can be invested, as per the the discretion of the fund manager, in gilts and PSU debt instruments.
``Gilt funds are advantageous for provident funds with a small size, say of Rs 5-10 crore. One, provident funds cannot trade in the gilt market and hence, they cannot adjust their investment pattern to the interest rate scenario. Two, the minimum lot for government securities is Rs 5 crore. It is difficult for PFs with a small corpus to invest and could lead to a higher transaction cost, thereby distorting yields,'' says a fund manager. LIC Bond Fund, which was launched in May this year, offers dividend and growth options. The fund has a current size of Rs 56 crore with a minimum investment of Rs 5,000.
The growth option has a NAV of Rs 10.65 while that of the dividend option has a NAV of 10.21. The fund has given a return of 3.10 per cent for the three month period.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.