Glide Invest FAQ: Why are we switching from Bharat Bond FOF to Motilal Oswal 5yr GSec FOF in our goal-based portfolios?

Why are we switching from Bharat Bond FOF to Motilal Oswal 5yr GSec FOF in our goal-based portfolios?

From March 2022, we will be replacing the Bharat Bond FOF mutual fund in our portfolios with the Motilal Oswal 5yr GSec FOF mutual fund. From the perspective of goal based investing, the key reasons for the switch are as follows:
  1. Fund ceases to exist - The Bharat Bond FoF follows a roll down strategy which calls for buying bonds maturing at a certain time and holding them till maturity. This essentially means that the ‘fund’ ceases to exist at a point in time in future. In goal based investing, funds with perpetual life span are preferred. Since Bharat Bond fund has predetermined expiry date it may not be ideal for long-term goal based investing.
  2. MTM Gain/Losses – Key offering of Bharat Bond FoF is the reasonable return visibility that investors could expect if they hold the fund till maturity. In cases where investor’s investment horizon is smaller than the funds maturity profile, then investor will have to redeem before the fund maturity and may see market to market gain/losses in their portfolio, resulting in loss of visibility of return and thereby defeating the purpose.
  3. Tax event - Most investors may have investment horizon (goals) not aligned to specific maturities offered by Bharat Bond FoF. For investors having investment horizon longer than the fund maturity profile, this translates to automatic redemption when the fund ceases to exist and may result in unwanted capital gain tax on the proceeds received from the fund. The Motilal Oswal 5 Year GSec fund does not expire (i.e. have perpetual life) and thereby can be aligned to the investment horizon and the investor can avoid unwanted tax event.
We selected the Bharat Bond fund at the time of creating our portfolios because a GSec type fund like Motilal Oswal's did not exit at that time.  Customers who creat new goals from March onwards would see this change in the funds that make up their portfolio for their selected goals.  Existing investors do not need to sell their goals or change their funds.  At the time of maturity of the Bharat Bond fund, we will rebalance the portfolio with another equivalent debt fund, so from a product perspective, we already had a operational and technical view on how we would make the transition seamless for our customers. 

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