Reliance Nivesh Lakshya Fund is an open-ended debt scheme from Reliance Mutual Fund AMC. The fund will primarily focus on generating optimal income for investors in line with low levels of risk in the long term. In order to achieve its primary objective, this debt fund will primarily invest in government bonds with maturity of 25 years. Apart from the generation of regular income, investors may also receive additional capital appreciation benefits through investments made into this debt mutual fund.
Reliance Nivesh Lakshya Fund Investment Strategy
The Reliance Nivesh Lakshya Fund would invest primarily in government bonds with tenure of 25 years and hold these investments till maturity. A majority of the scheme’s investments are expected to be high quality government securities held at present-day yields over the long term. This strategy allows investors to secure their future returns at today’s yield rates. Historical data from global economies shows that over time as economies grow, the rate of inflation as well as prevailing market interest rates witness a downtrend. This applies to all global economies including India hence over time, ROI of fixed return instruments are expected to be lower in the future as compared to today. Thus investing in the Reliance Nivesh Lakshya Fund allows investors to receive the prevailing higher yield rates of today over the long term.
An additional benefit that investors receive from the scheme’s strategy of holding long term debt instruments till maturity is a significant reduction in re-investment risk. Re-investment risk originates from the need to invest in a new investment vehicle due to cash flows generated through maturity of the existing investments or from accrual income obtained from the current fixed return investments. In such cases the new investment may have to be made at a rate that is lower than the original investment which might provide suboptimal returns to the investor. Such risk is minimized in case of Reliance Nivesh Lakshya as investments made by the scheme will be held till maturity. Moreover, the scheme intends to perform periodic rebalancing of its portfolio in order to ensure that a similar securities mix is maintained over the long term.
Reliance Nivesh Lakshya Fund NFO Start & End Date
The NFO (New Fund Offer) period for Reliance Nivesh Lakshya scheme started on 18th June, 2018 and will end on 2nd July, 2018. Subsequently, this open-ended debt scheme will be available for continuous sale/redemption on or before the 13th of July, 2018. During the NFO period, units of this scheme will be available at Rs.10 per unit. Subsequently, during the continuous offer period, scheme units will be available at applicable NAV-based prices.
| NFO Start Date | 18th June 2018 |
| NFO End Date | 2nd July 2018 |
| Continuous Sale/Redemption of Units | on or before 13th July 2018 |
| NFO Price | Rs. 10/unit |
Minimum Investment for the Reliance Nivesh Lakshya Fund & SIP Scheme
The minimum investment in Reliance Nivesh Lakshya Fund has been fixed at Rs. 5000 with incremental investments allowed in multiples of Rs. 1000. SIP investments are allowed by the scheme with the minimum SIP installment amount currently fixed at Rs. 100 per month for a minimum tenure of 60 months.
Reliance Nivesh Lakshya Fund Exit Load and SWP
As per the current information provided from Reliance Mutual Fund AMC, the Reliance Nivesh Lakshya Fund will feature an exit load of 1% if more than 10% of scheme units held by the investor are redeemed prior to completion of 1080 days from the date of allocation. Reliance Nivesh Lakshya also allows systematic withdrawal in multiples of Rs. 500 per SWP installment.
Reliance Nivesh Lakshya Fund Schemes
The following are the various scheme plans available under the direct and regular options to investors of the Reliance Nivesh Lakshya Fund:
- Growth
- Dividend
- Dividend Monthly (Payout/Reinvest)
- Dividend Quarterly (Payout/Reinvest)
- Dividend Half Yearly (Payout/Reinvest)
- Dividend Yearly (Payout/Reinvest)
Investors should note that distribution of dividend by the fund is subject to availability of distributable surplus and decision made by the fund management. Moreover, though tax-free in the hands of the investor dividends are subject to applicable dividend distribution tax (DDT). Details of DDT are provided in the subsequent tax implication section.
Key Information of the Reliance Nivesh Lakshya Fund
The following is some key information related to the Reliance Nivesh Lakshya Fund*:
| Fund House | Reliance Mutual Fund AMC |
| Scheme Type | Open-Ended Debt Fund |
| Scheme Category | Income Fund |
| Risk Level | Moderate |
| Inception Date | 18th June 2018 |
| NFO Period | 18th June 2018 – 2nd July 2018 |
| Scheme Benchmark | Crisil Long Term Debt Index |
| Fund Managers | Prakash R. Pimple and Kinjal Desai |
| Registrar and Transfer Agent | Karvy Computershare Pvt. Ltd. |
| Custodian | Deutsche Bank |
*The data is indicative and subject to periodic change based on fund strategy requirements and SEBI guidelines.
Expected Asset Allocation by the Reliance Nivesh Lakshya Fund
As provided in the scheme SID, the investible asset allocation made by the Reliance Nivesh Lakshya Fund is expected to be as follows*:
| Investment Type | Indicative Scheme Allocation | Risk Profile |
| Debt and Money Market Instruments | 0 to 100% | Low to Medium |
| Units Issued by InvITs and REITs | 0 to 10% | Medium to High |
| Equity | N/A | N/A |
*The investment allocation data are indicative pending commencement of scheme operations. InvITs refer to Infrastructure Investment Trusts and REITs refer to Real Estate Investment Trusts which are categorised as Category 1 Alternative Investment Funds by SEBI.
A few additional factors related to asset allocation by the scheme are as follows:
- The portfolio will mainly comprise government bonds featuring maturity of 25 years. The returns offered by this scheme can be up to 7 times in 25 years with annual rate of return at 8.2% per annum.
- Debt instruments held by the scheme may include liquid and securitized debt schemes launched by any SEBI-registered mutual fund. Additionally, the fund’s debt investments may also include schemes that invest mainly in money market securities/instruments.
- Securitised debt investments made by the fund should not exceed 50% of the scheme’s net investible assets.
- The fund may invest up to 25% of its net assets in foreign securities.
- The derivatives investment allocation for this scheme may be as high as 50%. However the cumulative gross exposure of Reliance Nivesh Lakshya Fund to derivative positions and debt investments should never exceed 100% of the fund’s net assets.
- This debt fund is also allowed to perform transactions including but not limited to Repo and Stock Lending from time to time as per applicable SEBI guidelines.
Key Risks and Mitigation Strategies for the Reliance Nivesh Lakshya Fund
The following are some key risks and fund-specific mitigation strategies that prospective investors of the Reliance Nivesh Lakshya Fund need to keep in mind:
Credit Risk: Credit Risk of debt schemes arises from the possibility that a bond issuer might not be able to complete its obligations with respect to coupon payouts etc. In case of the Reliance Nivesh Lakshya Fund, the impact of credit risk will be minimised as a majority of the scheme’s debt investments would be made in high quality government securities that feature a minimal level of credit risk.
Interest Rate Risk: Changing market interest rates have significant impact on the NAV of debt schemes especially those holding long maturity debt instruments. This is a key reason why this scheme is more suitable to investors seeking a long term debt investment solution. Changing interest rates may thus impact this scheme’s portfolio value adversely in the short term. But, this fund’s strategy of holding long residual maturity instruments till maturity will rationalize investor returns in the long term.
Reinvestment Risk: This risk originates from the scheme’s necessity to invest cash flows received from existing investments in a variety of interest rate conditions. Such investment requirements may also arise from the cash flow generated through maturity and subsequent redemption of existing investments held by the scheme. In some cases, the rate of reinvestment for the scheme may lag behind the cash inflows due to prevailing adverse market conditions leading to reinvestment risk. The Reliance Nivesh Lakshya Fund attempts to reduce the overall reinvestment risk by investing in long residual maturity instruments that are held till maturity and periodic portfolio rebalancing to ensure maintenance of the desired mix of securities.
Comparison between Tax Free Bonds and Reliance Nivesh Lakshya Fund
The following comparison shows why Reliance Nivesh Lakshya Fund is a superior investment as compared to tax free bonds.
|
Comparison Criteria |
Tax Free Bonds | Reliance Nivesh Lakshya Fund |
| Yields | 6% to 6.5% p.a.(tax free) | 7% to 7.3% p.a. (post taxes) |
| Returns | Long term returns can be kept consistent only if reinvestment of interest received can be made regularly at the same rate. This is almost impossible to achieve. | Superior compounding available through efficient reinvestment of accrued returns by the scheme into the same securities. Additional benefit of taxation applicability only after redemption is made by the investor. |
| Investment Tenure | Applicable maturity tenures include 10 years, 15 years and 20 years. As no new tax free bonds have been issued in the past 2 years, maximum residual maturity of available tax free bonds is 17 years. | Tenure of bonds featured in scheme portfolio is 25 years. However, investors can redeem scheme units within shorter time periods such as 10 years or earlier. |
| Liquidity | Low – only through exchanges where listed | Very High – can be redeemed at prevailing NAV as necessary. |
| Withdrawal/Payouts | Annual Interest which may adversely impact the overall benefit of compounding. | Higher compounding benefit through tax-efficient systematic withdrawal plans. |
| Reinvestment Risk | Moderate to high | Low. The scheme would reinvest in coupons of the same securities. |
| Indexation Benefits | None | Applicable on fund units held for 3 years or more from the date of allocation. |
| Lock–In | As per the tenure of bond i.e. 10 years, 15 years or 20 years. Can only be traded on exchanges before maturity. | No Lock in period. Exit load of 1% is applicable only if over 10% of initially allocated units are redeemed within 3 years from date of unit allocation. |
| NRI Investments | Not Allowed. | Allowed with additional benefit of no TDS deductions if party to Double Taxation Avoidance Agreement. |
| Maturity Value of Rs. 1 crore after staying invested for 25 years | Rs. 4.55 Crores (assuming reinvest of all interest at 6.25% during the 25 year investment tenure). | Up to Rs. 6.2 crores assuming returns at current yields of 8.1% along with 5% inflation and 0.5% total expense ratio for the scheme. |
Taxation Considerations for Investors of the Reliance Nivesh Lakshya Fund
Reliance Nivesh Lakshya Fund is designated as a debt scheme hence short term and long term capital gains taxation rules of non-equity investment will apply to the investment. In case an investor redeems units of this debt fund within 3 years from the date of allocation, short term capital gains (STCG) rules will apply. Similarly in case an investor redeems units after completion of 3 years from date of unit allocation, long term capital gains (LTCG) taxation rules will apply. Current STCG tax rate on gains in case of non-equity schemes is as per the applicable IT slab rate of the investor for the FY in which scheme units were redeemed as part of the investor’s income from other sources. The current LTCG rate for non-equity mutual fund investments is 20% on long term gains subjected to the benefit of indexation. In case indexation benefit is not applied, the applicable LTCG rate is 10% of total gains from redemption.
In case an investor opts for the dividend (reinvest or payout) option of the Reliance Nivesh Lakshya Fund, any and all dividends received are tax free in the hands of investor. However, a dividend distribution tax (DDT) is payable by the fund directly to the government whenever dividends are distributed. Current rate of DDT in case of non-equity schemes stands at 25% base tax + applicable health & education cess, surcharge, etc on the dividend distributed.
Who Should Invest in the Reliance Nivesh Lakshya Fund?
Considering the unique features of this scheme, investors who should consider investing in this debt scheme include:
- Those looking for a long term tax efficient debt investment solution.
- Investors seeking a low risk investment that insulates them from credit risk.
- Those looking for ways to lock-in future returns at today’s yield rates.
- Investors who seek a high liquidity long term investment that can be withdrawn flexibly either as a lump sum or through systematic withdrawal plans (subject to any applicable exit loads/indexation benefits).
- Investors seeking a low risk retirement funding solution.
- Those who want to plan for their child’s future education expenses using a low risk debt instrument.
- Institutional investors seeking a long term investment solution with low levels of risk.
How to Invest in Reliance Nivesh Lakshya Fund
You can invest in the Reliance Nivesh Lakshya Fund NFO either through the offline route or the online route. In case you intend to invest via the offline route, you can visit the representative office of Reliance Mutual Fund AMC (Asset Management Company) nearest to you, a nearby Karvy office or the brokerage of your choice to fill out the required forms and submit your initial investment cheque. In case you prefer to invest in direct option of the scheme during the NFO, you can do so through the Paisabzaar.com mutual fund portal. If you have invested with us before, you can just log into your mutual fund account and make a NFO purchase of the Reliance Nivesh Lakshya Fund units. In case you haven’t invested with us before, just sign up for a free mutual fund investment account and submit details online for Aadhar based ekyc with zero portfolio management and brokerage charges. The entire process can be completed online from the comfort of your home or office.
Other Funds by Nippon India Asset Management
| Scheme Name | 3Y Returns (%) | AUM (Rs. Cr.) | Category |
| Nippon India US Equity Opportunities Fund | 20.3 | 13.52 | Sectoral/Thematic Fund |
| Nippon India Index Fund Sensex Plan | 13.69 | 6.34 | Large Cap Fund |
| Nippon India Index Fund Nifty Plan | 11.8 | 127.05 | Large Cap Fund |
| Nippon India Large Cap Fund | 10.83 | 9832.83 | Large Cap Fund |
| Nippon India Banking Fund | 10.59 | 2959.26 | Sectoral/Thematic Fund |
| Nippon India Growth Fund | 10.47 | 7177.4 | Mid Cap Fund |
| Nippon India Gold Savings Fund | 10.28 | 655.99 | Gold Funds |
| Nippon India Japan Equity Fund | 10.25 | 17.58 | Sectoral/Thematic Fund |
| Nippon India Gilt Securities Fund | 10.23 | 995.98 | Gilt Fund |
| Nippon India Gilt Securities Fund Direct Defined Maturity Date-Growth | 10.23 | 995.98 | Gilt Fund |
| Nippon India Value Fund | 10.13 | 3374.75 | Value Fund |
| Nippon India Small Cap Fund | 9.9 | 7207.07 | Small Cap Fund |
| Nippon India Multi Cap Fund | 9.87 | 10053.46 | Multi Cap Fund |
| Nippon India Balanced Advantage Fund | 9.74 | 88.21 | Dynamic Asset Allocation |
| Nippon India Income Fund | 8.83 | 435.23 | Medium to Long Duration Fund |
| Nippon India Quant Fund Retail | 8.65 | 28.37 | Sectoral/Thematic Fund |
| Nippon India Banking & PSU Debt Fund | 8.5 | 4111.1 | Banking and PSU Fund |
| Nippon IndiaRetirement Fund – Income Generation Scheme Direct-Growth | 8.27 | 212.64 | Conservative Hybrid Fund |
| Nippon India Short Term Fund | 7.91 | 12068.23 | Short Duration Fund |
| Nippon India Prime Debt Fund | 7.82 | 9100.28 | Corporate Bond Fund |
{Data as on Feb 19, 2020; Source: Value Research}