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What is Roll down Strategy?

Like equity, fixed income/debt mutual funds may have two styles of management: active and passive. A fund manager builds the portfolio in an active strategy, keeping in mind different securities with different credit rating types like (AAA, AA/AA+) or bonds having different tenor or maturity dates. This is as per the fund objectives as defined in the Scheme Information Document. The fund manager may also manage the fund passively by holding the investments till maturity like in case of a Fixed Maturity Plan or an (FMP).

Fund houses have schemes with Roll Down Strategy. This strategy helps them target the traditional fixed-income investors, where the fund manager aims to provide relatively less volatile returns over the defined period with yields similar or higher than other traditional fixed-income instruments.

What is a Roll Down Strategy?

A roll-down strategy primarily involves making a portfolio of securities and holding them till maturity. The fund manager purchases security closer to the residual period, allowing the fund's average maturity period to keep rolling down.

How does this work?

In an open-ended fund, the fund manager adopts a roll-down strategy by purchasing securities and holding them till maturity. This strategy may help to build returns that may be more predictable. Also, for an open-ended fund, as an investor, you can enter or exit the fund anytime subject to the exit load

Risks of Roll Down Strategy

As an investor, you need to be alert when the maturity date of the portfolio arrives. This is because - a close-ended portfolio automatically pays out investors the proceeds at maturity, which is not the case for open ended schemes. Also, in reinvesting interest in a new roll-down strategy, markets may reduce the overall yields.

Impact on your Debt Fund Investments

Roll Down strategy may work for you if you are looking at a predictable and consistent rate of return over the defined time period and if the tenure of your financial goal matches with the roll down fund's target period. This could be either at the start of the fund or during time remaining at which you enter and have decided to stay in the fund. Roll Down Strategy may reduce volatility only if you remain invested till the target maturity date.

Other benefits such as indexation and long-term capital gains taxation, if units held for a period of more than 36 months remain the same as in the case of other debt funds.

Nippon India Dynamic Bond Fund (launched in 2004) is one of our funds following the roll-down strategy. This fund is a good solution for investors looking at an investment horizon of 5 - 10 years by neutralizing interest rates if they hold the fund for longer periods of time.

Please consult your mutual fund distributor or financial advisor before understanding the suitability of the fund to your investing needs. Want to get started with investing in debt mutual funds? Click Here


The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.

Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully

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