Reliance Mutual Fund to launch mega infrastructure debt fund

The minimum application amount is Rs. 1 crore and is targeted at high net worth individuals, institutional and corporate investors

July 17, 2012 10:15 IST | India Infoline News Service
Reliance Mutual Fund has filed offer document with SEBI (Securities and Exchange Board of India) to launch Reliance Infrastructure Debt Fund-Series 3, a close-ended infrastructure debt fund (tenure shall be decided at the time of launch). The new fund offer price is Rs. 10 lakh per unit. The tenure of the scheme will be five to 15 years.

The investment objective of the scheme is to generate regular income and capital appreciation by investing into investment themes within the infrastructure sector. According to the company, the fund will benefit both the mutual fund industry and companies engaged in the development of infrastructure. It would help in the objective of channelising the country’s household savings into productive assets.

Nozer Damania, research analyst, PersonalFN, said, “Infrastructure is the key to propel growth in the country. The infrastructure sector has huge potential but requires large funding with a long gestation period. However, the large funding requirement has been impeded by high cost of borrowing, currency depreciation, fuel shortages, etc. Moreover, a number of infra projects hit a road block due to vested interests of political parties.”

Pankaaj Maalde, head-financial planning, ApnaPaisa.com, said, “The minimum application amount is Rs. 1 crore and is targeted at high net worth individuals, institutional and corporate investors. The fund is a close-ended fund and will be listed on the Bombay Stock Exchange. This means liquidity will be poor as nobody can predict the volumes after its listing. The fund will invest 90%-100% in debt instruments of infrastructure companies and up to 10% in money market instruments or equity shares of companies engaged in infrastructure whether listed at recognised stock exchanges in India or not.”

Mr Damania further said, “From a holistic point of view it would be wise to invest in IDFs only when there are strong signals from the government to quicken the pace of reforms which in turn would result in sufficient fuel supply, credit supply, and boost confidence amongst the investors. However, pertaining to the long gestation period and similar offerings by NBFCs (non banking financial companies) which are also allowed to raise funds for the infrastructure sector, these debt funds will be suitable only for investors having longer investment horizon and should be looked at only after considering other debt fund options suitable as per the investment time horizon.” 

Mr Maalde, added, “Infrastructure sector itself is passing through the bad phase and shares of the infrastructure companies are also trading at low price. Investing in a fund with a particular sector in mind always has a higher risk compared to diversified portfolio. It is also important to know whether fund will invest in AAA-rated companies only or not. One needs to know risk involved in the fund before investing in it.”

“IDFs from mutual funds are supposed to be more aggressive than the IDFs floated by NBFCs which may offer guaranteed returns. So before investing one should keep in mind that IDFs from mutual funds do not offer any guaranteed returns and the returns may vary and can be even negative in the short term. IDFs from mutual funds may not be suitable for retail investors whose primary aim is to preserve their capital and then look for appreciation. Thus, it seems that may be due to the above reasons, the scheme from IDF from Reliance Mutual fund is a close ended scheme with a minimum application size of Rs. 1 crore,” elaborated Mr Damania.



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