Edelweiss NIFTY PSU Bond Plus SDL Index Fund NFO: Should you invest?

Here is India’s first target-maturity debt-index fund which will invest in State Development Loans (SDLs) plus PSU bonds

Staff Writer   /   March 11, 2021

Edelweiss AMC has announced the launch of Edelweiss NIFTY PSU Bond Plus SDL Index Fund – 2026. Passively managed, this first of its kind index fund will invest in AAA rated PSU Bonds as well as State Development Loans (SDL). The offering, whose NFO will open on March 10 and close on March 16, is touted to be India’s first target-maturity debt-index fund. Should you invest? Read on to know.

What is the fund

Edelweiss Nifty PSU Bond Plus SDL Index Fund – 2026 is a debt index fund which will invest your money in PSU bonds and SDLs. Please note that the scheme is neither capital protected nor guaranteed return product.

An index fund comprises securities that are in the underlying index. Edelweiss Nifty PSU Bond Plus SDL Index Fund – 2026 is a passively managed debt index fund which you can buy and sell any time through the AMC during the tenure of the fund.

Proportion of investments of AAA PSU Bonds and SDLs will be equally divided with a weightage of 50 per cent each. Exposure to any single company’s bonds or loans would be capped at 15 per cent of the corpus. Subsequently, there will be a quarterly rebalancing and review of the index constituents.

Since this is a debt index fund, the scheme seeks to track the Nifty PSU Bond Plus SDL Apr 2026 50:50 Index subject to tracking errors.

The scheme will invest in AAA rated PSU bonds and SDLs maturing within the maturity date of the scheme.

The scheme will follow Buy & Hold investment strategy in which existing bonds will be held till maturity unless sold for meeting redemptions, payment of dividend, rebalancing requirement or optimizing portfolio construction process.

The fund will have a defined maturity date and at maturity you will get your investment proceeds. The date is April 30, 2026. What will happen on that date? The fund will distribute maturity proceeds (net assets) to the unitholders after the maturity date.

What is the fund’s YTM

The yield to maturity as on March 3rd was 6.32 per cent.

The underlying debt index has exposure to PSUs like NHPC, IRFC, NPCIL, NLC, REC, IOC, MRPL, PGCIL, NTPC, PFC, EXIM BANK. In so far as state governments are concerned, it has exposure to 10 State Government securities.

If you buy and hold the fund, at maturity, investors will get back their investment proceeds. The fund will aim to hold the bonds till maturity in order to provide stability and visibility of returns to investors. Taxed at 20 per cent post indexation, this fund will be more tax efficient as compared to traditional avenues. However, the fund offers no guarantee of returns or capital protection.

Why SDLs in portfolio

As per Edelweiss MF, SDL spreads have significantly widened against comparable Government Securities due to structural increase in the share of state borrowing as percentage of total borrowing.

Seasonal spike in spreads in the last quarter is also aiding this trend.

A blended portfolio of AAA PSU Bonds + SDLs provides reasonably better yield along with safety, according to them.

Fund-house speak

“Post the success we’ve seen with corporate bond ETFs with the launch of Bharat Bond last year, it is heartening to now see a significant rise in popularity of target maturity debt funds among investors. Yields have risen in the last couple of weeks and this is a good time to invest in a target maturity fund and lock-in investments at higher yields. This index fund can give a fair amount of visible and tax efficient returns, along with higher safety and transparency at a low cost,” says Radhika Gupta, MD & CEO, Edelweiss Mutual Fund.

Other fund details

NFO Period – 10th to 16th March, 2021

Underlying Index – NIFTY PSU Bond Plus SDL Apr 2026 50:50 Index

Fund Manager – Dhawal Dalal (co – fund manager Gautam Kaul)

Exit Load – Up to 30 days – 0.15 per cent; After 30 days – NIL

Minimum Investment Amount (NFO Period) – Rs 5,000

Conclusion

Edelweiss NIFTY PSU Bond Plus SDL Index Fund is India’s first target-maturity debt-index fund. It’s a unique proposition for buy and hold investors.

It would have been better if the fund was in a closed-ended structure since keeping it open-ended makes the fund vulnerable to volatility of outflows from some investors, which may impact all investors.

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