India's first US bond fund

Bonds
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IDFC is launching first dollar bond fund where the fund basically invests in US treasuries via JP morgan fund

If you are betting on higher US interest rates and depreciating rupee, this might be a good bet.

Thread by Neil borate covers the key points related to this fund

https://twitter.com/ActusDei/status/1628926252890394624?t=ujcQp5ovO6PoUU2ujjtt9g&s=19

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How the income/gains on these are taxed in India?
Like normal MF or one has to show to it as securities held in Other Countires?
Or as Debt Fund?

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Taxed as a mutual-fund in India.
Investing in this fund does not get us any securities in US.
Just that this fund in India expects to track returns of US treasury bonds.
(by the fund-house investing/trading in them.)

The final part of the infographic from the Livemint article,
highlights why this is not an attractive option in terms of returns,
even after accounting for the typical annual 3-4% depreciation of INR w.r.t. USD.

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Couple of scenarios,
when investing into US treasuries (whether directly or through such funds),
appears to be a good option, are…

  • …when INR experiences unusual and significant depreciation (>9%) w.r.t. USD.
  • …when interest rate drops significantly in the US (and the price/yield of the bonds held by this fund goes up).

In other scenarios, Indian GSECs and Liquid funds are expected to outperform (give higher returns) than this fund.

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Thanks for the reply…
First I thought since US is experiencing high inflation and Fed is raising rates, may be they will go past 5.5%.
So in near future till the US inflation is high compared to what it was historically or at lesst post 2008, the rupee depreciation will be quite low. But when US Inflation comes down (may be after 2-3 years) and the rates will drops, isnn’t that will give good returns.
My thinkkng is avg rate INR depreciation is proportional to Difference between percentage value of Inflation in US and India.
Is this thinking/logic of mine on right track?

But then I saw that IDFC will be investing 0-1 Years Treasuries and I realized that price of treasury securities IDFC FoF going to hold is not going to appreciate within this time frame. I was thought (after mistakenly reading that 0-1-year as 0-10year) their duration is going to be 7-10 years.