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MF Corner: Experts answer queries on investing in RBI retail scheme and China funds

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Harshvardhan Roongta of Roongta Securities and Gaurav Gupta of G-Cube Investments appeared on CNBC-TV18’s special show Mutual Fund Corner and answered some of the viewer queries.

Answering a question on whether the RBI retail scheme is a good debt instrument, Roongta said it is a scheme where the investments into government securities can be brought to the retail investor.

“So, a retail investor needs to open the retail direct gilt (RDG) account with the RBI free of cost and there the investor will be able to invest into the government securities. The securities could be the central government securities, the state government, investments into treasury bills and even sovereign gold bonds (SGs). Earlier the situation was that if you wanted to participate directly into gilt market, the ticket size or the minimum lot size was approximately Rs 5 crore. However, with this account, a retail investor can invest as little as Rs 10,000 and can go up to Rs 2 crores. This is an attempt by RBI to broaden the market and to enable investors to put money directly to government securities if they wish,” said Roongta.

“This product suits very well for those who have just recently retired. So, we are looking at retirees who got a corpus in their hand and are looking at a continuous or a fixed source of income for the rest of their life. Here, they could invest into long debt government securities, wherein they will be assured of a fixed yield that they enter into today and that is the yield that they will get for whatever next 20-30 years, depending on the bond that they buy,” Roongta explained.

“There was always an option to invest in gilt through mutual funds. Mutual funds had this basket of gilt funds, wherein an investor would park money there and they would get a basket of our gilt securities, and there would not be a specific paper that they would invest into. However, with this RDG, if there are many people who would like to trade in government securities and bet upon interest rate movements, that again becomes possible by opening this RDG account and trading through that, said Roongta.

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Answering the query about investing in funds that invest Chinese market post the Evergrande crisis, Gupta said currently there are two funds that invest in Chinese market that is Edelweiss and Axis.

“Axis was launched just six or eight months back. The Evergrande crisis happened in the month of July, and post that the NAV of the Edelweiss China Fund fell by about 15 percent and till now it has been recovered only 2 or 3 percent from its lows. So, I would suggest that investors can avoid China funds and only somebody with a very high-risk appetite look at them. It would be better investing in a diversified US fund for diversification,” he added.

“If one looked at the last 10-year track record of China funds, the return is around 15 to 16 percent even after the fall, while the five-year return is close to 20 percent. So, for a high-risk appetite investor, if he/she is already exposed to the domestic market and has some US portfolio as well and is looking to diversify into another country then he/she could consider small exposure to the Chinese market otherwise it is best to avoid,” advised Gupta.

For answers to other queries, watch the video.