RBI rate cuts may make G-Sec ETFs attractive: LIC Mutual Fund’s Ravi Jha explains why

With the Reserve Bank of India (RBI) delivering two back-to-back rate cuts totaling 50 basis points, the interest rate cycle has officially turned. The move comes after two years of pause and signals a shift in the central bank’s stance to support economic growth and revive demand.

The ripple effects are already visible, with several banks lowering their fixed deposit (FD) rates.

This may push investors to explore alternative avenues for stable returns.

One such alternative is government securities (G-Secs)—especially through G-Sec Exchange Traded Funds (ETFs).

Government securities (G-Secs) are bonds issued by the central or state governments to raise money from the public.

According to Ravi Jha, Managing Director & CEO – Equity at LIC Mutual Fund Asset Management, the timing may be just right.

“In a falling interest rate environment, long-duration bonds tend to appreciate in value,” he noted, pointing out that G-Secs could be the biggest beneficiaries of the current easing cycle.

Why debt is gaining ground again?

RBI’s rate cuts aim to revive urban consumption and address slowing economic momentum. For investors, this policy shift improves the outlook for fixed income instruments, particularly long-duration debt schemes.

As Jha explains, government securities are well-positioned in this landscape thanks to favorable demand-supply dynamics and sovereign credit backing.

While the recent removal of indexation benefits on long-term capital gains has reduced the tax appeal of debt products, Jha believes they still play a valuable role in portfolio diversification.

“Debt allocations may remain a go-to choice, especially for tactical investors looking to take advantage of interest rate cycles,” he said.

Tactical allocation: Key considerations

Tactical investing in debt requires a strategic lens.

Jha advises looking at four elements:

• Liquidity
• Accessibility
• Security
• Return potential

G-Sec ETFs tick all these boxes.

Compared to target maturity funds or credit risk fund, which may face illiquidity or credit issues, G-Sec ETFs invest exclusively in sovereign papers, reducing risk while ensuring smoother exits.

What makes G-Sec ETFs stand out is their structure.

Jha explains that these ETFs track live NAVs and offer simplified entry and exit. A typical 10-year G-Sec ETF sees high trading volumes, allowing even large transactions to be executed smoothly.

That makes them ideal for medium- to long-term tactical bets.

Another advantage is their open-ended nature, which provides exit flexibility. “This feature is particularly useful for high-net-worth individuals and family offices that need liquidity during different market events,” Jha adds.

Can retail investors access G-Sec ETFs?

While the primary market investment threshold for G-Sec ETFs is ₹25 crore, retail investors can still participate.

Asset management companies (AMCs) appoint market makers to offer continuous two-way quotes in the secondary market.

This allows investors to buy or sell even a single unit.

“This structure ensures efficient price discovery and seamless execution, making G-Sec ETFs suitable for all kinds of investors,” says Jha.

A look at some of the existing G-Secs

Fund Name	1-Year Return (%)	Expense Ratio (%)
SBI Nifty 10 yr Benchmark G-Sec ETF	12.06	0.14
ICICI Prudential Nifty 10 yr Benchmark G-Sec ETF	12.02	0.14
ICICI Prudential Constant Maturity Gilt Fund	12.3	0.39
SBI Magnum Constant Maturity Fund	11.83	0.63

(Source: Value Research)

Are there any risks?

While G-Secs are considered safe from a credit perspective, they are not risk-free. Their prices fluctuate with interest rate movements—falling when rates rise.

This makes them sensitive to interest rate risk, especially for longer-duration bonds.

Additionally, while G-Sec ETFs are more liquid than some debt mutual funds, liquidity can still be limited in extreme market conditions.