HDFC Asset Management Company's HDFC NIFTY 1D Rate Liquid ETF invests in tri-party repos involving government securities and treasury bills. The scheme mirrors the NIFTY 1D Rate Index, which measures the return generated by market participants lending in the overnight market. Tri-party repo is a repo contract where a third party or the tri-party agent acts as an intermediary apart from the borrower and the lender.
The new fund offer (NFO) opened on August 18, 2023, and will close on August 23, 2023. The fund house said that investors with a demat account could park their idle funds in the scheme and earn returns while they await better trading opportunities. Also, they can deploy the scheme's units as collateral for margin trading.
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During the NFO period, the minimum application amount is Rs. 5,000 and in multiples of Re. 1 thereafter. The fund house said that the Income Distribution cum Capital Withdrawal (IDCW) dividends that accrue daily will be credited to investors' bank accounts weekly.
However, it added that the IDCW is subject to the availability of distributable surplus. It said that the scheme plans to declare IDCW daily to maintain its units' net asset value (NAV) at a face value of Rs. 1,000.
Who Can Consider Investing?
Designed for active traders, securities brokers, PMS, AIFs, family offices, and similar entities, the scheme can manage surplus cash and reap returns on pledged collateral without exposure to Market to Market (MtM) risk. MtM risk means that security, purchased at a specific price, undergoes a subsequent market-driven decline. This is avoided because the investment is primarily made on overnight TREPs (Tri-party repos), a category of financial instruments used for short-term investments by banks, financial institutions, and mutual funds.
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Overnight TREPs (Tri-Party Repos) have no Mark to Market (MTM) risk as they involve lending money overnight with low-interest rate risk. Further, they are secured by government securities, so they have low credit risk.
The overnight TREPs rate was 6.37 per cent as of July 31, 2023, compared to 2.85 per cent of typical savings bank accounts. A minimum of 95 per cent and a maximum of 100 per cent will be allocated in Tri-Party Repos and treasury bills. No exit load applies to this fund.
