The USP of such launches is that if held to maturity, these funds mimic fastened deposits (FDs). They pay a predictable (although not assured) charge of return and accomplish that with extra tax effectivity than FDs. The return, roughly talking, is the yield of the fund minus its expense ratio.

IDFC AMC is slated to launch two debt index funds investing in authorities bonds maturing in six and 7 years respectively. Edelweiss AMC additionally plans to launch two debt index funds, albeit investing half their property in PSU bonds and SDLs (state growth loans) in 2026 and 2027, respectively, (maturing 5 and 6 years down the road). Axis AMC has filed for 2 debt ETFs—5 years and 30 years maturity. SBI Mutual Fund has filed with Sebi for a PSU Bond plus SDL ETF with a five-year maturity.

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“We’ll launch the fund with index yields round 6.4% for 2026 in mid-March and should launch the 2027 fund later. Expense ratios might be round 0.15% and 0.30% within the direct and common plans, respectively,” mentioned Radhika Gupta, MD & CEO, Edelweiss AMC.

For its half, IDFC AMC is eschewing SDLs and PSU debt, sticking to central authorities securities (G-sec) solely.

“Within the open-ended house, the place funds will circulation out and in, and the place the fund has to copy the index, the G-sec phase on account of its higher liquidity, decrease impression price on shopping for/promoting and rebalancing (to index) and relatively decrease strain on account of excessive provide of papers vis-à-vis SDLs presents a greater alternative,” mentioned Sirshendu Basu, head – merchandise, IDFC AMC.

The AMC is as an alternative betting on the steepness of the yield curve within the six to seven-year tenor.

“Two variants of six- and seven-year tenor every of G-sec Goal Date Funds might be launched on 12 March. The yields on the indexes as on 28 February are 6.20% and 6.30%, respectively,” mentioned Basu.

Axis Asset Administration has filed for a 30-year gilt ETF, investing in bonds maturing in 2050 other than a goal maturity debt ETF with a five-year tenor.

“We have now filed two goal maturity debt ETFs with Sebi. One is 5 years and the opposite is 30 years. The five-year ETF might be a mix of company bonds (AAA solely) and SDLs, which makes it a singular product. We consider there may be additionally sufficient worth in high-quality company bonds, other than PSU and state authorities debt,” mentioned Ashwin Patni, head – merchandise and options, Axis AMC.

Mutual fund executives have highlighted the excessive degree of liquidity in authorities bonds, which such index funds are monitoring and their capacity to choose the ‘candy spot’ within the yield curve.

“The USP for the fund is the 100% sovereign devices, the steepness within the yield curve—at that six to seven-year mark, which can compensate for the restricted rise in yields and ‘roll-down’/goal date technique,” mentioned Basu.

Business professionals have additionally dismissed considerations in regards to the threat of rising rates of interest.

“I’m not fearful about rising rates of interest in a goal maturity fund construction. Buyers in these funds ought to maintain them until maturity, which makes the interim NAV (internet asset worth) motion on account of curiosity modifications irrelevant. If yields rise, buyers can truly lock in greater yields by investing extra,” mentioned Gupta.

Basu added: “The index funds are a part of a barbell technique that the AMC has been suggesting—with buyers accumulating schemes on the brief (in a single day) and lengthy finish (six-eight years).”

The roll-down construction just isn’t with out threat. Such funds may face issues discovering bonds of an applicable maturity if there are massive inflows.

If rates of interest rise, debt fund NAVs endure a mark-to-market impression. That is immaterial for an investor who holds the fund to maturity, however she is going to nonetheless find yourself locking herself in at a low charge.

Nonetheless, monetary specialists have taken a constructive stance on the choices with some caveats.

“Given the steepness of the curve at current, merchandise constructed with longer maturity and high quality papers provide a good alternative for buyers with an extended funding horizon. Whereas roll-down methods are utilized by many merchandise reminiscent of company bond funds, the maturity often ranges between three to 4 years. Buyers comfy with longer maturities and might keep invested by way of intermittent volatility can take into account investing in them,” mentioned Prableen Bajpai, founder, Finfix Analysis and Analytics Pvt. Ltd.

Vishal Dhawan, founder, Plan Forward Wealth Advisors, added: “Allocate part of your portfolio to such merchandise. The danger of inflation and therefore rates of interest rising is there, however this may be contained by limiting publicity to such 5 to seven-year maturity funds to a portion of your portfolio. Fairness just isn’t the best reply for a 5 to seven-year horizon. PPF has a good longer life span and is an effective debt product to contemplate.”