Idbi Principal Amc Unveils Trust Fund

The IDBI Principal Asset Management Company has launched Trust Benefit Fund, a scheme dedicated to charitable institutions and trusts.

With more than one lakh crore worth assets under these trusts, the fund believes that there is huge untapped potential in this segment.

According to Sanjay Sachdev, IDBI Principal chief executive officer, the scheme's investments would be in longer maturity instruments.

Rajat Jain, chief investment officer, IDBI Principal, said that maturities of the instruments would be on par with bond funds in the rest of the sector which are at around five-six years.

Corporate bonds with triple A ratings and with maturities between three and five years offer yields between 7.7-8.2 per cent. Lower rated papers of the same maturities offer returns between eight-nine per cent.

Jain said allowing for expenses and adding 50 basis points from churn profits, returns from the fund could be around seven per cent.

And, actual returns could be much lower than the industry average for bond fund returns since the scheme does not plan to churn its portfolio much.

This is one way the scheme plans to lower expenses, apart from lowering client servicing costs. The expenses are proposed to be maintained at 1.25 per cent of the daily average net assets.

Sachdev said that a number of charitable institutions had already evinced interest in the product and a modest target of Rs 100 crore is being envisaged. All these charitable institutions would get the benefit of tax exemptions.

Housing societies, at present, are not offered tax exemptions. Sachdev said that they would apply for tax exemption in this case also.

Since the product has to be sold to a different category of investors, alternative distribution channels are being looked at.

Prakash Diwan, marketing and sales head of the fund, said that they were looking at Citibank and HSBC for this purpose, which had a number of non-government organisation accounts and were associated with these trusts.

As a safety net, the scheme guarantees that 80 per cent of the funds would be invested in triple A rated papers and these instruments would be monitored on a daily basis by the fund's analysts. Further, investors have the facility to invest their dividend returns from the scheme in any scheme of their choice from the fund.