Radhika Gupta couldn’t be more bullish on passive debt funds, calling them a “guaranteed game-changer”. Why wouldn’t she? After all, Edelweiss Mutual Fund, of which she is the managing director and chief executive, manages the most popular passive debt fund in India currently—the government’s Bharat Bond series. Its December 2021 issue of Rs 1,000 crore ($135 million) was oversubscribed more than 6X, among the highest since the series was launched in December 2019. 

In fact, the Bharat Bond series has catapulted Edelweiss from the #20 spot among India’s 40-plus mutual fund companies to #14 in terms of assets under management (AUM). The company’s AUM zoomed from about Rs 24,000 crore ($3.23 billion) in December 2019 to Rs 87,000 crore ($11.7 billion) in December 2021. Of this, nearly Rs 44,000 crore ($5.9 billion) is Bharat Bond AUM. 

Gupta’s all-in bet on the Bharat Bond series is backed by two things—that it’s a passive debt fund and, on top of that, a target maturity fund (TMF) to boot.

Passive debt funds, like their equity counterparts, seek to ‘passively’ track the composition and performance of a benchmark index, unlike active funds which seek to outperform the index by ‘actively’ investing in specific securities. Passive funds are seen as cheaper for both the fund house and the investor, as well as a safer option for investors.  

While that alone is possibly enough to reel in investors, the Bharat Bond series’ TMF status is the icing on the mutual fund cake. TMFs, much like the name suggests, are funds that have a specific date of maturity. Like a fixed deposit (FD), for example. 

That’s the position Gupta’s taking—an alternative to fixed deposits. And a superior alternative at that. “Fixed income investing is a big problem in India. TMFs are a better-than-FD solution, solving for an Indian investor in the Indian context,” says Gupta.

For one, interest rates on FDs have been on a downward trend for the last couple of years—going from about 7.5% to about 5.5%, on an average. Making matters worse is the tax on fixed deposits, with the interest being taxed at an investor’s slab rates. This can go up to 30%. So, real rates have turned negative in many cases—what investors earn on their deposits is often less than the increase in their costs.

TMFs are a ‘Jio’ opportunity for debt funds because the fixed deposit demand in India is unsatiated.

— Radhika Gupta, managing director and chief executive offer, Edelweiss Mutual Fund

And yet, FDs remain some of the most popular savings options in the country.

AUTHOR

Anand Kalyanaraman

A certified Chartered Accountant, Anand chose to pack the power of numbers with words when he left a career of seven years in accounting, putting together MIS reports, and investment research to enter journalism. Before joining The Ken, Anand was Deputy Editor at The Hindu BusinessLine, a newspaper he worked at for 11 years.

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