Gilt fund with 10-year constant duration

A Gilt fund with 10-year constant duration is a SEBI-defined debt mutual fund category that invests in Government of India securities while maintaining a portfolio Macaulay duration close to 10 years on an ongoing basis. Unlike general gilt funds , which can hold G-Secs across the maturity spectrum at the manager’s discretion, the constant-duration variant has a structural duration target making it a more pure-play interest-rate-sensitivity vehicle.

For Indian investors who want predictable long-duration interest-rate exposure (e.g., for ALM matching, retirement-corpus construction, or thematic bets on falling rates), this category provides pure G-Sec credit quality (sovereign), predictable 10-year duration profile, and high interest-rate sensitivity.

SEBI definition

Per the SEBI October 2017 categorisation :

• Investment universe: Government securities (G-Secs).
• Macaulay duration target: ~10 years.
• Permitted band: Modest tolerance around 10-year duration (typically 8 to 12 years).
• Credit quality: Sovereign only (zero credit risk).

The “constant duration” requirement distinguishes this from general gilt funds (which can shorten duration to reduce interest-rate risk).

Duration-targeting mechanics

By holding ~10-year duration consistently:

• The fund offers predictable interest-rate sensitivity for asset-allocation models.
• Removes manager discretion on duration timing.
• Makes the fund’s response to rate changes mechanical and measurable.

AMCs maintain the target by holding a portfolio of bonds with various maturities such that the weighted average duration is ~10 years, periodically rebalancing as bonds age (durations naturally decrease) and buying newer long-tenor G-Secs when older ones approach maturity.

Interest-rate sensitivity

A 10-year-duration fund has approximately 10% NAV change for every 100 basis-point (1 percentage point) parallel shift in the yield curve. 10 to 20% drawdowns possible during sharp rate-hike cycles. Symmetric upside during rate-cut cycles.

Comparison with shorter-duration debt

Comparison with general gilt fund

Schemes (illustrative)

Notable 10-year constant duration gilt funds:

• ICICI Prudential Constant Maturity Gilt Fund.
• SBI Magnum Constant Maturity Fund.
• IDFC Government Securities Fund (Constant Maturity).
• Edelweiss Government Securities Fund.

Tax treatment

Per debt mutual fund taxation post-2023 :

• All gains taxed at investor’s slab rate.
• No LTCG benefit (removed April 2023).
• TDS per Section 194K on dividends if applicable.

Use cases

ALM (Asset-Liability Matching)

For investors with long-dated liabilities (e.g., children’s college fund 10 years out, planned house purchase 10 years out): 10-year duration matches the time horizon, sovereign credit eliminates default risk.

Rate-cut thesis

For investors with a strong directional view that interest rates will fall: 10-year constant duration gilt provides maximum INR-denominated duration exposure. Returns highly correlated with NIFTY 10-year G-Sec .

Retirement corpus

Some retirees use long-duration gilt for predictable income / capital preservation, accepting interest-rate volatility for the credit-quality assurance.

See also

• Mutual funds in India
• SEBI October 2017 categorisation
• Gilt mutual fund
• Long duration mutual fund
• Dynamic bond mutual fund
• NIFTY 10-year G-Sec
• NIFTY 5-year G-Sec
• Macaulay/modified duration
• YTM mutual fund
• Debt mutual fund taxation (post-2023)
• Section 194K
• CRISIL Composite Bond Index
• SEBI
• AMFI

External references

• SEBI
• RBI
• AMFI India

References

1. SEBI October 2017 categorisation circular.
2. SEBI (Mutual Funds) Regulations 1996.
3. AMFI Best Practice Guidelines.