Who should invest in Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Short Duration Index Fund

Published on / By M. Pattabiraman Twitter: @pattufreefincal

Published: June 5, 2024 at 6:00 am

In this article, we profile the Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Short Duration Index Fund (Edelweiss Short Duration Index Fund for short) and discuss who should invest in it.

Edelweiss Short Duration Index Fund is an open-ended debt Index Fund investing in the constituents of CRISIL IBX 50:50 Gilt Plus SDL Short Duration Index. The fund is classified as having “relatively high-interest rate risk and relatively low credit risk”.

The index will comprise 50% gilts and 50% State Development Loans (SDLs) spread among four duration buckets: 1-2 years, 2-3 years, 3-4 years and 4-5 years. This is how the fund has allocated bonds so far.

Historical maturity profile of Edelweiss CRISIL IBX 50-50 Gilt Plus SDL Short Duration Index Fund
Historical maturity profile of Edelweiss CRISIL IBX 50-50 Gilt Plus SDL Short Duration Index Fund

There seems to be some duration play (portfolio changes to reflect demand-supply forces in the bond market), but within five years. In Jan 2024, 80% of the portfolio had a tenure of 3-5 years.

The Historical YTM, Modified Duration (Years), Average Maturity (Years) and Macaulay Duration (Years) of Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Short Duration Index Fund are shown below.

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Historical YTM, Modified Duration (Years), Average Maturity (Years) and Macaulay Duration (Years) of Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Short Duration Index Fund
Historical YTM, Modified Duration (Years), Average Maturity (Years) and Macaulay Duration (Years) of Edelweiss CRISIL IBX 50:50 Gilt Plus SDL Short Duration Index Fund

The modified duration is a measure of interest rate sensitivity. For example, if the interest rates increase by 1% overnight, the NAV would fall by about 2.5% (if the approx. average modified duration is 2.5 years). Please note that this is past data.

Change in NAV = -1 x Modified Duration x (change in interest rate)

For more details on Macaulay duration and modified duration, see Why you need to worry about”duration” if your mutual funds invest in bonds.

Readers who want to compare the latest portfolio ratios and other metrics can use our monthly debt and hybrid fund screener,

Who can invest in the Edelweiss Short Duration Index Fund?

  • Note: Do not make the mistake of expecting a fixed return from any debt fund! That would only lead to disappointment. Unless you are ready to accept that debt returns are uncertain and prone to demand vs supply risks, do not invest in any debt fund!
  • Remember that just because a bond portfolio credit quality is high, it does not mean its NAV will be steady! The NAV will depend on demand-supply forces in the market.
  • The AMC says the fund is suitable if  “Your investment horizon is minimum one year and above”. Looking at the above graph, we recommend a holding duration of at least three years or more for experienced investors and at least five years or more for newbies.
  • Investors looking for a tax-efficient alternative to fixed deposits for long-term goals but cannot stomach the volatility of gilt funds can consider this fund. The tax rate for this fund is the same as that for FDs, but since partial withdrawals can be made, the effective tax outgo is lower.
  • Investors with a sufficient retirement corpus and the necessary experience and risk awareness can consider this fund an income source via occasional withdrawals.