The HDFC NIFTY 1D Rate Liquid ETF from HDFC Asset Management Company invests in tri-party repos involving treasury bills and government securities. The program is designed to be similar to the NIFTY 1D Rate Index, which gauges the profit made by market players who lend in the overnight market. In a tri-party repo, an intermediary other than the borrower and the lender serves as the repo contract’s third party or tri-party agent.
The August 18, 2023 opening and August 23, 2023 closing dates for the new fund offer (NFO). Investors having a demat account, according to the fund house, may store their unused assets in the program and earn returns while they wait for better trading chances. Additionally, they may use the units of the scheme as margin trading collateral.
The minimum application amount is Rs. 5,000 during the NFO period and is then in multiples of Rs. 1 moving forward. The fund firm said that the weekly crediting of investors’ bank accounts would occur for the daily Income Distribution cum Capital Withdrawal (IDCW) payouts.
But it also said that the IDCW is dependent on the presence of distributable surplus. It said that the scheme intended to declare IDCW each day in order to keep the face value of its units’ net asset value (NAV) at Rs. 1,000.
Who Should Think About Investing?
The plan may manage excess capital and generate returns on pledged collateral without exposure to Market to Market (MtM) risk. It is designed for active traders, securities brokers, PMS, AIFs, family offices, and similar businesses. MtM risk refers to the possibility that an asset acquired at a certain price may eventually experience a market-driven decrease. This is prevented by the investment’s primary reliance on overnight TREPs (Tri-party repos), a kind of financial instruments used by banks, financial institutions, and mutual funds to make short-term investments.
Since overnight TREPs (Tri-Party Repos) include overnight loan with low-interest rate risk, they do not involve Mark to Market (MTM) risk. Additionally, they have little credit risk since they are backed by government assets.
As of July 31, 2023, the overnight TREPs rate was 6.37 percent, compared to 2.85 percent for conventional savings bank accounts. Tri-Party Repos and Treasury Bills will be awarded a minimum of 95% and a maximum of 100%. This fund does not have an exit load.