Edelweiss Asset Management has launched a New Fund Offer (NFO) for India’s first open-ended passive short-term index scheme. The scheme, called Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Short Duration Index Fund, will invest in a diversified portfolio of Indian Government Bonds (IGB) and State Development Loans (SDL).

The NFO for the Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Short Duration Index Fund opens on January 27, 2023.

Edelweiss Mutual Fund is a pioneer in the passive debt fund category, with a market share of over Rs 68,000 crore in assets under management (as on December 31, 2022).

The scheme invests 50% of funds in IGB and the rest in SDL. The G-Sec tranche will be structured by selecting the most liquid government bonds with a minimum float of Rs 10,000 crore and maturities ranging from one year to five years.

The SDL tranche will be structured by selecting the most liquid issuer in each eligible maturity bucket and then selecting the most liquid ISIN (securities) from each bucket with a minimum float of Rs 500 crore. The scheme’s benchmark, the CRISIL IBX 50:50 Gilt Plus SDL Short Duration Index, involves the SDLs of Rajasthan, Gujarat and Karnataka.

The fund has a modified maturity of 2.63 years, a yield to maturity (YTM) of 7.34%, and a net YTM of approximately 7.19%.

The index will be rebalanced quarterly, effective the first business day of the month. The fund managers of the scheme are Dhawal Dalal and Rahul Dedhia.

Radhika Gupta, MD and CEO of Edelweiss AMC, said: “The idea was to create a specific product that is low cost and has no credit issues because it contains government securities and SDLs and has a constant duration. So, you don’t have to worry about rolling it over and over again, like target maturity. It’s an easy short-term parking vehicle, like your friendly bank account.”

The expense ratio under the fund’s direct plans is 10-15 basis points, well below the average expense ratio of other short-term and low-duration funds.

Experts also say that with interest rates expected to peak soon, it would be ideal for locking in current yields for those eyeing the debt space.

Experts say SDLs have a market liquidity risk compared to fixed-rate SDLs and corporate bonds. Also, experts warn that people only looking at one year should refrain from investing in the product. In recent years, passive funds have competed with active debt funds with their low-cost structures.

The CRISIL IBX 50:50 Gilt Plus SDL Short-Term Index Fund can be part of any long-term portfolio. But make sure this isn’t your only debt allocation. If your investment horizon is 2-3 years, consider adding this fund to your portfolio. The NFO will close on February 10, 2023.