Nippon India Nivesh Lakshya Fund Review: Who should invest?

Published: May 5, 2020 at 11:07 am

Last Updated on

Nippon India Nivesh Lakshya Fund is an open-ended long-duration debt scheme investing in instruments such that the Macaulay duration of the portfolio is
greater than 7 years. We discuss the nature of this funds portfolio, its investment strategy and who should invest in this fund.

“Nivesh Lakshya Fund” is not your typical sounding debt or equity fund name! It sounds more like a child-plan or retirement-plan, but it is not. This is an open-ended debt fund investing in very long-term bonds.

Investors should not make the mistake of assuming that “Macaulay duration of greater than 7 years” implies this fund can be used for goals seven years or more. According to April 2020 factsheet, as on March 31st 2020, the Average Portfolio Maturity 24.05 Years, the  Modified Duration is 10.86 Years and the Yield to Maturity* 6.61%

These terms are explained in detail here: Three Key Mutual Fund Terms All Retail Investors Should Know and also here: Why you need to worry about “duration” if your mutual funds invest in bonds

The Macaulay duration is a measure of how long it would take to recoup an investment but does not factor in bond prices changes due to market demand and supply. The modified duration does this better (see multiple examples in the duration article linked above).

Longer the tenure of the bonds, the more the prices (and therefore the fund NAV) fluctuates due to yield changes.  A modified duration of 10 years implies the NAV will fall (or move up) by 10% if interest rates move up (or down) by 1%. Do not invest in debt funds without appreciating these basic ideas!!

Also, notice that the average maturity is more than two times the modified duration or the Macaulay duration. Debt fund classification should be done by average maturity only!

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Nippon India Nivesh Lakshya Fund: Investment philosophy

As usual, there is a huge disparity between what is mentioned in the scheme document and the fund leaflet. The leaflet (which was prepared by Reliance MF) says the fund philosophy is:

 Investments in long term fixed income securities predominantly
Government Securities at the current yields.

Most of the securities would be bought and held till maturity.

Rebalancing the portfolio to ensure that similar securities mix is
maintained.

Insulation from credit risk.

None of these statements is found in the scheme document (the only legally binding entity). In fact, the document says, “The fund management team will take an active view of the interest rate movement by keeping a close watch on various parameters of the Indian economy, as well as developments in global markets”

Basic Fund Facts

  • Category: Debt long-duration. If we exclude Bharat ETF and its FOF from Edelweiss, there are only two funds in this category: this and ICICI Long Term Bond Fund
  • Date of inception: July 2018
  • AUM: 829 Crores (March 2020)
  • Expenses: 0.53% regular and 0.21% direct
  • Benchmark: CRISIL Long Term Debt Index (a hybrid index with gilts, AAA and AA bonds)

Asset Allocation History

Asset Allocation history of Nippon India Nivesh Lakshya Fund since inception
Asset Allocation history of Nippon India Nivesh Lakshya Fund since inception

The fund has predominantly held (very)long-term govt bonds. Unfortunately, the scheme document does not say it will continue to do only that!

NAV Movement

NAV movement of Nippon India Nivesh Lakshya Fund and CRISIL 10Y Gilt index
NAV movement of Nippon India Nivesh Lakshya Fund and CRISIL 10Y Gilt index

This is how volatile long-term gilts can be and this is the price of avoiding credit risk.

Should you invest?

Why run a long-term gilt fund in the long-duration category when there is an exclusive gilt category? Yet again we see the many problems with the SEBI categorization rules.

Even if we assume the fund would stick to govt bonds and AAA/A1+ bonds in future, the NAV would be quite volatile. So it can only be used for truly long-term 15Y+ goals with disciplined portfolio rebalancing.  .Only those up to that task, only those who can stomach this volatility and exploit it should consider this fund.

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Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
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1 Comment

  1. Good Analysis Pattu.

    I was keen to know about this fund. The fund only have three long duration govt bonds in it’s portfolio. Is that is issue?

    I understand that the nav will fluctuate as thenbond prices are marked to market. Given the trend of reducing interest rate, I was wondering if this could be a good option in debt from a 3 to 5 yrs horizon.

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