In the Indian Debt market, the short to medium bend of the yield curve looks attractive. It is currently driven by domestic and global macroeconomic indicators, making investments with a maturity of 5-6 years an ideal investment option for debt investors.

Target Maturity Funds are debt funds with predetermined maturities that are passively managed. These funds are flexible and come with varying tenures with the idea of identifying pockets of yields that look attractive at a given point in time. The structure of Target Maturity Index Funds works on decreasing residual maturity, which means each passing year, the maturity of the underlying bonds keeps reducing. In this way, the duration risk keeps going down, even as a defined maturity date approaches, making the returns from this fund predictable.

On the other hand, Target Maturity Index Funds invest in and hold bonds with similar maturities that are part of the underlying bond Index. In the short to medium term, debt securities like G-secs and SDLs offer enticing yields. While G-secs offer high liquidity with the added benefit of high quality, SDLs offer returns comparable to those of AAA bonds. G-secs are backed by the government and thus have a sovereign rating. Similar to G-Secs, SDLs have sovereign ratings. Therefore, they pose less credit risk. The combination of excessive liquidity/low rates and improving growth/elevated inflation/demand-supply imbalance have resulted in a steep yield curve. Investors can potentially benefit from the current steepness in rates by investing in Target Maturity Funds.

Edelweiss Mutual Fund has launched Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Sep 2028 Index Fund; it is an open-ended Target Maturity Index Fund investing in the constituents of CRISIL IBX 50:50 Gilt Plus SDL Index – Sep 2028.

While commenting on the launch of the new fund, Ms Radhika Gupta, MD & CEO at Edelweiss Asset Management Limited, said, “Target Maturity Index Funds are one of the prudent fixed income options for investors to lock in investments at current yields. With the successful launch of various debt fund options, including target maturity funds over the past two years, we are now the largest player managing long-term fixed-income money for investors. Our aim is to provide a wide range of fixed income options for investors with steady returns while investing in highest rated debt instruments.”

Table 1: Detail for Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Sep 2028 Index Fund

Type An open-ended target maturity Index Fund is investing in the constituents of CRISIL IBX 50:50 Gilt Plus SDL Index – Sep 2028. A relatively high-interest rate risk and relatively low credit risk. Category Index Fund
Investment Objective The scheme’s investment objective is to replicate CRISIL IBX 50:50 Gilt Plus SDL Index – Sep 2028 by investing in Indian Government Bonds and SDLs, maturing on or before September 28, 2028, subject to tracking errors. However, there is no assurance that the investment objective of the scheme will be realised, and the scheme does not assure or guarantee any returns.
Min. Investment Rs 5,000 and in multiples of Re 1/- thereafter. Additional Purchase Rs 500/- and in multiples of Re. 1 thereafter. Face Value Rs 10/- per unit
SIP/SWP/STP Available
Plans
  • Direct
  • Regular
Options
  • Growth
  • Income Distribution cum capital withdrawal (IDCW)
Entry Load Not Applicable Exit Load
  • 0.10% up to 30 days
  • Nil after 30 days
Fund Manager
  • Mr Dhawal Dalal
  • Mr Rahul Dedhia
Benchmark Index CRISIL IBX 50:50 Gilt Plus SDL Index – Sep 2028
Issue Opens November 01, 2022 Issue Closes November 07, 2022

(Source: Scheme Information Document

The investment strategy for Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Sep 2028 Index Fund will be as follows:

Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Sep 2028 Index Fund employs a passive approach designed to track the performance of CRISIL IBX 50:50 Gilt Plus SDL Index – Sep 2028. The scheme will follow a buy & hold investment strategy in which existing bonds will be held till maturity unless sold for meeting redemptions, IDCW payment or rebalancing requirements.

The portfolio of eligible securities invested by the scheme is expected to have, in aggregate, fundamental characteristics such as modified duration, weighted average maturity, aggregate credit ratings, aggregate Yield to Maturity (YTM) etc., along with other liquidity parameters in line with CRISIL IBX 50:50 Gilt Plus SDL Index – Sep 2028.

Accordingly, the scheme will invest 95% to 100% of its portfolio in Indian Government Bonds and in State Development Loans (SDLs), replicating the portfolio of CRISIL IBX 50:50 Gilt Plus SDL Index – Sep 2028. The scheme may also invest in money market instruments to meet liquidity requirements.

Under normal circumstances, the Asset Allocation will be as under:

Table 2: Asset Allocation for Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Sep 2028 Index Fund

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Indian Government Bonds and SDLs representing CRISIL IBX 50:50 Gilt Plus SDL Index – Sep 2028 95 100 Low to Medium
Money Market Instruments 0 5 Low

(Source: Scheme Information Document

About the benchmark

CRISIL IBX 50:50 Gilt Plus SDL Index – Sep 2028 seeks to track the performance of Gilt and SDL securities maturing on 28 September 2022. The index shall mature on 28 September 2028, and it’s a target date index that follows a roll-down approach.

  • Indian Government Bonds (IGBs) component selection:

    – Bonds mature within the 12 months prior to the maturity date of the index

    – Bonds with a minimum outstanding of Rs 25,000 crores

    – 2 most liquid Bonds based on their liquidity scores (Liquidity score is calculated by allocating 70% weight to the volume traded, 15% weight to the number of days traded and 15% weight to the number of trades of the bond during the previous quarter)

  • State Development Loans (SDLs) component selection:

    – Issuers with a minimum outstanding of Rs 1,000 crores to be considered

    – Top 15 liquid issuers to be shortlisted

    – Most liquid ISIN of each issuer to be selected based on liquidity score and minimum outstanding of Rs. 500 crores.

Here’s the list of constituent issuers under the CRISIL IBX 50:50 Gilt Plus SDL Index – Sep 2028 as on October 28, 2022:

(Source: Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Sep 2028 Index Fund PPT

Note that the index will be rebalanced and reviewed on each calendar quarter end. Weights to individual IGBs and SDLs will be calculated in the ratio of the amount outstanding (30% weightage) and liquidity score (70% weightage).

Who will manage the Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Sep 2028 Index Fund?

Mr Dhawal Dalal and Mr Rahul Dedhia will be the designated fund managers for this scheme.

Mr Dhawal Dalal has completed his MBA and holds a B.E degree as well; he has an overall work experience of 24 years, mostly in the investment management function. Prior to joining Edelweiss AMC, he was associated with DSP BlackRock Investment Managers Pvt. Ltd. as Executive Vice President and Head of Fixed Income and with Merrill Lynch Investment Managers as Assistant Portfolio Manager.

At Edelweiss Mutual Fund, Mr Dalal currently manages the Edelweiss Money Market FundEdelweiss Banking and PSU Debt FundEdelweiss Government Securities FundEdelweiss Equity Savings Fund (Debt Portion), Edelweiss Arbitrage Fund (Debt Portion), Edelweiss Aggressive Hybrid Fund (Debt Portion), BHARAT Bond ETF – April 2023BHARAT Bond ETF – April 2030BHARAT Bond FOF – April 2023BHARAT Bond FOF – April 2030BHARAT Bond ETF – April 2025BHARAT Bond ETF – April 2031BHARAT Bond FOF – April 2025BHARAT Bond FOF – April 2031BHARAT Bond ETF – April 2032BHARAT Bond FOF – April 2032Edelweiss NIFTY PSU Bond Plus SDL Apr – 2026 50:50 Index FundEdelweiss NIFTY PSU Bond Plus SDL Apr – 2027 50:50 Index Fund, and Edelweiss CRISIL PSU Plus 50:50 Oct 2025 Index Fund.

Mr Rahul Dedhia has completed his B.E (Electronics) from Mumbai University and MBA (Finance) from MET College Mumbai. He has over 13 years of experience in the fixed-income market, including 11 years in the mutual fund industry. Prior to joining Edelweiss AMC, he was associated as Assistant Fund Manager with DHFL Pramerica Mutual Fund and with Deutsche Asset Management (India) Pvt. Ltd.

At Edelweiss Mutual Fund, Mr Dedhia currently manages Edelweiss Liquid FundEdelweiss Overnight FundEdelweiss Banking and PSU Debt FundEdelweiss Government Securities FundEdelweiss Balanced Advantage Fund (Debt Portion), BHARAT Bond ETF – April 2023BHARAT Bond ETF – April 2030BHARAT Bond FOF – April 2023BHARAT Bond FOF – April 2030BHARAT Bond ETF – April 2025BHARAT Bond ETF – April 2031BHARAT Bond FOF – April 2025BHARAT Bond FOF – April 2031BHARAT Bond ETF – April 2032BHARAT Bond FOF – April 2032Edelweiss NIFTY PSU Bond Plus SDL Apr – 2026 50:50 Index FundEdelweiss NIFTY PSU Bond Plus SDL Apr – 2027 50:50 Index Fund, and Edelweiss CRISIL PSU Plus 50:50 Oct 2025 Index Fund.

Fund Outlook – Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Sep 2028 Index Fund

Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Sep 2028 Index Fund is a passively managed debt index fund that aims to replicate the performance of the CRISIL IBX 50:50 Gilt Plus SDL Index – Sep 2028, subject to tracking error. The scheme offers safety with relatively low credit risk through investments in G-Sec and SDL.

The fund will invest in G-Sec and SDLs that meet the eligibility criteria of the underlying index and will have similar maturity as that of the index, i.e., 28th Sep 2028. The fund will invest in sovereign government-backed securities, which reduces credit risk for investors and provides an opportunity to build their debt portfolio at a low cost. The scheme invests equally in a 50:50 proportion of quality G-Sec and SDL papers and has no duration risk when held until maturity. Further, its roll-down strategy is conducive to the current interest rate environment.

The scheme focuses on the rich steepness of the curve vs the shorter end. It aims on the six-year target maturity segment, which looks attractive considering the volatile outlook on long-term securities. The scheme provides investors with a mix of quality papers with better risk-adjusted performance and liquidity.

Although the scheme invests in government-backed securities with low credit risk, it is still prone to high debt market and interest rate risks. In addition, the recent increase in interest rates by the RBI maintains the rising interest rate environment, which is unfavourable for debt funds. If there are adverse developments, such as a worsening geo-political scenario, rising inflation, and a massive increase in government borrowings, bond yields can go up further, and investors should be prepared for some volatility. These factors, among others, may have an adverse impact on the scheme’s performance.

The fortune of this scheme will depend on the performance of the underlying index. Thus, Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Sep 2028 Index Fund is suitable for investors with a moderate risk profile looking forward to building their Debt portfolio and ensuring an investment horizon to match the fund’s portfolio duration.

This article first appeared on PersonalFN here


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