This segment of collective investments on the Moscow Stock Exchange and https://telegram-store.com/catalog/product-category/channels/business is practically absent, there is only one representative, which in its name contains the word “inflationary”. That is, the fund invests “in inflation. This is achieved with the help of “inflationary” OFZs – bonds, the body of which is indexed daily by the amount of inflation. The coupon rate on such bonds is quite modest, at 2.5% of face value. The coupon rate is recalculated daily, depending on the constantly changing face value of the bond. At first glance, the coupon yield is so low that it wouldn’t make sense to invest in such bonds. However, if one considers the specifics of “inflationary” bonds, the coupons on them yield 2.5% real yields, and that’s already a serious result. Total costs of the fund in question are stated at 0.4% of net asset value (NAV) – this is the lowest cost for an investor investing in Russian BUIFs. It might seem that this fund would be the best option for a passive investor. However, there are some non-obvious nuances you should be aware of before you start buying inflation fund units. There are only four inflation bond issues in the fund. It’s a very simple portfolio. Do you need to pay a commission to a manager to manage a portfolio of only four securities for you? Moreover, this is not a case where the shares of instruments in a portfolio can significantly affect the bottom line. You could very well divide your capital equally and buy all four issues in equal proportions. Your result is likely to be just as good as a fund with professional managers. Low management fees look tempting to the passive investor, but it’s important to get the “interest on interest” right. The manager’s commission will be charged on the incoming bond coupons. A 0.4% NAV with 2.5% coupons received means that the manager will take 16% of the coupon income. If you buy the bonds yourself, 13% personal income tax is withheld from the coupon. The management fee covers all the tax advantages of investing through funds. It’s also important here to understand the difference between 16% and 13% (again, count “interest on interest”). The 16% coupon income withheld by the manager means that your coupon income will be almost a quarter less than if you invested directly in inflation bonds. An ambiguous point from a tax perspective is that income received from indexation of the bond’s body may be taxable for individuals (if you hold the bond for less than three years), while a mutual fund will definitely pay no taxes in that case. This may be an advantage of a fund as compared to self-investment. However, if we analyze this aspect in detail, the advantages of the fund become less obvious. Of all four inflation-bond issues, only one matures in less than three years. You can simply skip buying that issue and distribute the funds among the long issues. By doing so, you’ll get the long-term holding tax credit (LTC) on the securities and save on taxes. Your portfolio will end up being just three securities, and it will be much easier to manage. You can reinvest all the incoming coupons into “long” bonds, so that you can get the LPV from new purchases. If the Ministry of Finance develops the idea of “inflationary” borrowing, over time there will be new long issues of inflationary bonds, and with that comes the ability to buy those issues. When some bond has less than three years to maturity, you will simply stop buying it. Instead, you will use the money to buy securities with more than three years to maturity. That way, you’ll always have the opportunity to reinvest coupons in inflation bonds with the prospect of receiving a refunding for that reinvestment. If the inflation fund manager reduces management fees to 0.2%, it would make sense to invest in the fund. At the moment, it is more profitable for a private investor to manage an “inflation” portfolio himself.