Edelweiss MF has launched Short Term Index Fund NFO which would open for subscription on 27th February, 2023. This passive fund would invest in the index that has diversified portfolio of Indian Govt bonds and SDLs. Should you invest in Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Short Term Index Fund NFO? What are the various risk factors associated with such funds?.
What is special about Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Short Term Index Fund?
This is an index fund which replicates the Crisil Ibx 50:50 Gilt plus SDL short term index. This index consists of Indian Govt Bonds (IGB) 50% and State Development Loans (SDL’s) 50%.
The underlying index securities duration is between 1 to 5 years which further classified into the bands of 1-2 years, 2-3 years, 3-4 years and 4-5 years. The average maturity duration is 2.63 years.
This index would be rebalanced every quarter on the first business day of the month.
The Yield to Maturity (YTM) indicates 7.3% which can be considered as a benchmark and the actual yield could be higher or lower post fund management expenses.
Below is the list of index constituents.
Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Short Term Index Fund – NFO Issue Details
Here are the issue details of this NFO.
|Scheme reopens for continuous purchase/sale||Within 5 working days|
|Minimum Lumpsum||Rs 5,000|
|Minimum SIP||Rs 500 for 12 months|
|NAV of the fund||Rs 10 during NFO period|
|Benchmark||CRISIL [IBX] 50:50 Gilt Plus SDL Short Duration Index|
|Fund Manager||Mr. Dhawal Dalal|
What is the investment objective of this MF scheme?
The investment objective of the scheme is to replicate CRISIL IBX 50:50 Gilt Plus SDL Short Duration Index by investing in a diversified portfolio of Indian Government Bonds and SDLs, subject to tracking errors.
There is no assurance or guarantee that the investment objective of the scheme will be realized.
What is the allocation pattern in this mutual fund?
This fund invests pattern is as follows:
|Type of instruments||Min %||Max %||Risk Profile|
|Indian Government Bonds and SDLs representing CRISIL IBX
50:50 Gilt Plus SDL Short Term Index
|95%||100%||Low to medium|
|Money Market Instruments||0%||5%||Low|
How the Index Performance can be compared to active debt funds?
As per the brochure, below is the performance comparison between this index fund vs. other active debt fund categories.
Why to invest in Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Short Term Index Fund?
Here are a few reasons to invest in such mutual fund schemes.
1) The Scheme will predominantly invest in a mix of Indian Government Bonds (IGBs) and State Development Loans (SDLs) with durations ranging between 1-5 years. There has low or almost zero default risk.
2) This is a simple index fund to choose compared to several active debt funds available in the market.
3) Since this fund invests in constituents of the index, there is no bias towards any specific instruments.
4) Since this is an index fund, it comes with low cost.
Risk Factors of investing in such index funds
One should consider some of these risk factors / negative factors before investing.
1) Investment in govt bonds like other debt instruments have price and interest rate risk. When interest rate rises, the prices of bonds fall and vice versa.
2) Even though SDL market is relatively liquid, there is market liquidity risk with fixed rate SDLs compared to corporate bonds. Many occasions there is high volatility leading to trading with low volumes.
3) The index YTM indicates 7.19% after expense ratio. However, in reality the actual returns could be lower after considering tracking error and interest rate volatility.
4) You can refer complete risk factors by going through the scheme related documents.
Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Short Term Index Fund – Should you invest in this NFO?
Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Short Term Index Fund is a passive fund that invests in an index which has Indian Govt Bonds and State Development Loans. This index has low default risk. The yield to maturity (YTM) indicates 7.19% post expense ratio.
On the other side, there is interest rate volatility in this index fund. The YTM is benchmark and can fluctuate with interest rate volatility. Investors also might get confused where fund name states short term index fund, but the investment objective states “This product suitable for investors who are seeing income over the long term”. This is for investors who want to invest for 1 to 5 year timeframe. This is not an alternative to bank FD as current bank FDs offer similar or higher returns.
If you are looking for short term investments beyond bank FDs and want to avoid default risks, you can consider such funds.
If you like this article, please share this on your Facebook or Twitter. This would be a special gift which you would be giving to our blog.
- 5 Best Balanced Advantage Mutual Funds to invest in 2024 - December 4, 2023
- LIC Jeevan Utsav Plan No 871 – Features, Benefits and Review - December 2, 2023
- 10% Arka Fincap NCD Dec-2023 issue – Should you Invest? - December 1, 2023