The Prudential ICICI Gilt fund has an innovation in which it has two plans - the Treasury Plan and the Investment Plan. The treasury plan is aimed at investors looking at avenues to invest surplus funds for short periods, ideally 3-6 months. The fund proposes to invest the proceeds of the planin gilts (including Treasury Bills) with short to medium term residual maturities, with the average maturity of the portfolio normally not exceeding 3 years.

The investment plan will cater to investors investing for a medium to long term, ideally greater than onw year. The fund proposes to invest the proceeds in gilts (including Treasury Bills) with medium to long maturities, with the average maturity of the portfolio normally not exceeding 8 years. Investors may note that the investment portfolios under the above plans will be distinct, keeping in view the differences in maturity. Each plan will have a separate NAV.

Prudential ICICI is eyeing a susbscription of around Rs 500 crore, while the Canbank Mutual Fund has kept a minimum subscription amount of Rs 1 crore. The Cangilt scheme has kept a minimum investment of Rs 1,000, while the Prudential fund has kept it at Rs 25,000. The gilt fund will receive tax benefits as dividend will be exempt in the hands of the recipient. Added to that would be benefitsof long term capital gain under section 112 & 48 and exemption under section 54EA & 54EB.

Dedicated gilt funds face the maximum interest rate risk while trying to maintain stability of return and liquidity. Investing in central and state government securities, the NAV of the Schemes will be sensitive to changes in interest rates. In case of an increase in interest rates, the market value of the existing investments may fall, leading to a fall in the NAV.The schemes are tailor-made to cater to provident funds, gratuity funds, superannuation funds who are required to invest upto 40 per cent of their funds in government securities issued by Central or State Governments. The schemes aim at generating returns commenurate with zero credit risk by investing in securities created and issued by the Central Government and/or a State Government and/or repos/ reverse repos in such government securities as may be permitted by RBI.