SBI Mutual Fund launched SBI NIFTY 1D Rate ETF, an open-ended Exchange Traded Fund that will mirror the benchmark NIFTY 1D Rate Index. The new fund offer (NFO) will be available from October 23 to October 26, 2023.
The SBI NIFTY 1D Rate ETF gives investors the opportunity for “cash equitisation”, allowing for simultaneous buy or sell transactions of shares, with 1D RATE ETFs, popularly known as Liquid ETFs. “Investors can consider investing in this fund due to the opportunity of market-linked returns, as historically the index has consistently delivered higher rolling returns compared to zero returns in trading accounts,” the release said
The minimum application amount is Rs 5,000 during the NFO, and investors can buy or redeem units in minimum lots of 1 unit and multiples thereof when trading on exchanges. There is no entry and exit load in the scheme.
This investment option is liquid due to its listing on stock exchanges. The portfolio includes investments in money market securities (TREPS) backed by collateral, devoid of marked-to-market risk, as the investment primarily involves overnight TREPs.
Overnight TREPs are free from Mark to Market (MTM) risk and are secured by government securities, reducing credit risk. The overnight TREPs rate was 6.37 per cent as of July 31, 2023, compared to 2 to 3 per cent offered by a savings bank account.
Active traders, securities brokers, PMS, AIFs, family offices, and similar entities can manage surplus cash and earn returns on pledged collateral without exposure to market-to-market (MtM) risk. MtM risk arises when a security purchased at a specific price undergoes a subsequent market-driven decline. This risk is avoided as investments primarily consist of overnight TREPs (Tri-party repos), commonly used for short-term investments by banks, financial institutions, and mutual funds.
Further, the release says it has no security transaction tax (STT) and a small lot size of 1 unit for trading on exchanges.
The scheme will invest 95-100 per cent in Securities comprising NIFTY 1D Rate Index, i.e., Tri-Party Repo on Government Securities or T bills. Additionally, 0-5 per cent can be invested in Repo/Reverse Repo in Government securities and other similar overnight instruments, units of
liquid and overnight schemes, debt and money market instruments (with maturity not exceeding 91 days), and cash and cash equivalents.