NFO review: Nippon India ETF Nifty SDL – 2026 Maturity

This is an open-ended target maturity exchange traded SDL fund; State Development Loans (SDLs) offer higher yield than Government Securities generally

Staff Writer   /   March 19, 2021

Nippon India Mutual Fund has launched Nippon India ETF Nifty SDL – 2026 Maturity. This is an open-ended target maturity exchange traded SDL fund predominantly investing in constituents of Nifty SDL Apr 2026 Top 20 Equal Weight Index. This product aims to hold State Development Loan (SDL) securities till maturity, thereby mitigating interim interest rate risk. Read on to know more about this offering, whose NFO closes on March 19.

Debt ETF

Nippon India ETF Nifty SDL – 2026 Maturity is a debt exchange traded fund. This means you will need a demat account to invest in this product.

Because this is an ETF, an investor can enjoy trading flexibility intraday on the exchange, real time price, put limit orders. Also, minimum trading lot is just 1 unit.

SDL explained

This ETF will hold State Development Loan (SDL) securities till maturity. So, you may want to know what is SDL.

State governments raise loans from the market through SDL securities. SDLs are dated securities issued through normal auction similar to the auctions conducted for dated securities issued by the Central Government.

Interest in SDL securities is serviced at half-yearly intervals and the principal is repaid on the maturity date.

Typically, SDLs carry higher interest to a Government Security (G-Sec). For instance, SDLs, with 4-5 years residual maturity, offer 5.7 percent to 6.7 percent yield compared to 5.8 per cent for a 5-year G-Sec.

Underlying index

Nippon India ETF Nifty SDL – 2026 Maturity will track a ready-made index. This index is a basket of SDL securities. The index is called Nifty SDL Apr 2026 Top 20 Equal Weight Index. The index seeks to measures the performance of a portfolio of 20 SDLs maturing between May 01, 2025 to April 30, 2026.

Do remember the index shall mature on April 30, 2026 and hence has defined maturity date. This means the ETF will also mature about the same time and money will be returned to investor.

In the Nifty SDL Apr 2026 Top 20 Equal Weight Index, each state/UT that is part of the index is given equal weight at the beginning. Effectively, each SDL has a weight of 5 percent as on base date. Subsequently, the weights may drift due to price movement of the SDL.

At this point, the index has SDLs of Uttarakhand, Uttar Pradesh, Punjab, Gujarat, West Bengal, Himachal Pradesh, Maharashtra, Madhya Pradesh, Jharkhand, Jammu & Kashmir, Haryana, Bihar, Rajasthan, Chhattisgarh, Assam, Kerala, Karnataka, Telangana, Tamil Nadu, and Andhra Pradesh.

Advantages of the ETF

Nippon India ETF Nifty SDL – 2026 Maturity is relatively safe compared to equity and other aggressive debt funds.

Since this is an ETF, the fund will be a low cost product in terms of Total Expense Ratio.

Also, due to the ETF structure, there is reduction in non-systemic risk like security selection and portfolio manager selection, as the fund will apply buy and hold strategy and aim to follow the underlying index.

Do note the ETF portfolio will be rolled down in line with the index, hence incremental investment will happen in SDLs representing the index. In case of maturity of any or all SDLs which are part of the scheme portfolio, the maturity proceeds will be deployed in treasury bills and Tri-Party Repos, till the scheme’s maturity date.

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.

Nippon India ETF Nifty SDL – 2026 Maturity comes soon after the launch of Edelweiss NIFTY PSU Bond Plus SDL Index Fund, which is India’s first target-maturity debt-index fund.

Do remember that in November 2020 Nippon MF had launched Nippon India ETF Nifty CPSE Bond Plus SDL – 2024 Maturity. That Rs 1006-crore fund in the last 3 months has lost 1 per cent, which is more than the medium duration debt fund category (down 0.45 per cent). The fall in debt fund returns is because of the perceived effect of rising rates, which is sharper in longer duration bonds.

NFO details

NFO opens on March 15, 2021
NFO closes on March 19, 2021

Benchmark index – Nifty SDL Apr 2026 Top 20 Equal Weight Index

Pricing – Approximately 1/10th of Nifty SDL Apr 2026 Top 20 Equal Weight Index

Fund Manager – Vivek Sharma & Siddharth Deb

Minimum application amount (during NFO) – Rs 5,000

Listing – NFO Units offered pursuant to the NFO, to be listed on NSE within 5 working days from the date of allotment

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