5.9% post-tax returns! Should you invest in Edelweiss debt index fund?
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5.9% post-tax returns! Should you invest in Edelweiss debt index fund?

The fund comes with a target maturity of April 30, 2026. A target maturity fund has a specified maturity date that aligns with the expiry date of the bonds it has in its portfolio. This helps such funds provide predictive and stable returns

  • March 10, 2021  
  • |  
  • UPDATED   18:17 IST
5.9% post-tax returns! Should you invest in Edelweiss debt index fund?
Edelweiss AMC on Monday launched a passively managed low-cost debt index fund

Edelweiss AMC on Monday launched a passively managed low-cost debt index fund 'NIFTY PSU Bond Plus SDL Index Fund - 2026'. The New Fund Offer (NFO) will close on March 16.

Since it is an index fund it will invest in the constituents of NIFTY PSU Bond Plus SDL 50:50 Index. In simpler words, your money will go into AAA-rated PSU bonds such as PFC, REC and IRFC as well as State Development Loans (SDL) in equal proportion. 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.

The fund comes with a target maturity of April 30, 2026. A target maturity fund has a specified maturity date that aligns with the expiry date of the bonds it has in its portfolio. This helps such funds provide predictive and stable returns.

The tax story

Since it is a debt fund, long-term capital gains will be taxed at 20 per cent with indexation if you hold it for more than three years, while short-term capital gains as per your income tax slab rate. Indexation helps adjust buying price of your investment with inflation, thus lowering your tax liability. According to index benefit illustration by Edelweiss, the post-tax returns -- if you hold it till maturity -- will amount to 5.9 per cent.

Should you invest?

When you invest in a debt fund you have a relatively short-term horizon in mind. That said, this is not a substitute for short-term debt funds.

"With interest rates expected to go up, locking into a lower rate in a target maturity fund may not work. This fund should be considered only by very conservative investors who want clear visibility of returns. Otherwise, prefer a short-term debt fund," says Mrin Agarwal, founder, Finsafe India.

If you have a long-term horizon of three to five years and do not want to take risk, the Edelweiss NFO may work for you. "Interest rate movement is debatable. So, if you have a definite five-year goal in mind, this is an efficient way to invest for it in the light of safety, liquidity and returns whether those are high or low. In any case, 5.9 per cent post-tax returns are not a bad starting point," says Radhika Gupta, CEO, Edelweiss AMC.

Minimum one can invest Rs 5,000 in NIFTY PSU Bond Plus SDL Index Fund - 2026. There is an exit load of 0.15 per cent if you exit before 30 days.

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