10 Year Constant Maturity Gilt Fund: How a Fixed 10-Year Duration Shapes Returns

Most debt funds give the manager some room to move. A 10 year constant maturity gilt fund gives almost none. SEBI’s rulebook pins the portfolio to government securities and fixes its Macaulay duration at 10 years, so the fund’s interest-rate risk is set by regulation rather than by anyone’s view of where rates are heading. That makes it one of the most predictable products in the debt fund menu. It also means you can’t really blame the fund manager when the NAV drops after a rate scare.

This guide covers what the category rules actually say, why a fixed 10-year duration behaves the way it does, how to estimate the NAV hit from a yield move, and where this fund sits next to an ordinary gilt fund.

What SEBI’s rules say about a 10 year constant maturity gilt fund

The category is defined in Part IV of Chapter 3 of the SEBI Master Circular for Mutual Funds dated March 20, 2026, which lists 17 debt scheme categories. Item 15 is the “10 year Constant Maturity Gilt Fund”, and its scheme characteristics come down to two conditions:

• At least 80% of total assets must be in government securities (G-secs).
• The portfolio has to be arranged so that its Macaulay duration is equal to 10 years.

The uniform description that every such scheme must carry reads, in substance, as an open-ended debt scheme investing in government securities having a constant maturity of 10 years.

Compare that with item 14, the plain Gilt Fund. It also needs a minimum of 80% of total assets in G-secs, but “across maturity”. The manager of a regular gilt fund can sit at three years of duration one quarter and twelve the next. The manager of a constant maturity fund has to stay at 10.

The same circular says only one scheme per category is permitted for each fund house, with exceptions for index funds and ETFs, fund of funds and sectoral or thematic funds. So an AMC can run one 10-year constant maturity gilt fund, not three versions of it.

Why “constant” matters more than “10 year”

A single 10-year government bond doesn’t stay a 10-year bond. Every year that passes, its remaining life shrinks, and so does its sensitivity to interest rates. Hold it for nine years and you are left with a one-year paper that barely moves when yields change.

A constant maturity fund doesn’t age like that. Because the rule is about the portfolio’s duration staying at 10 years, the manager keeps selling older papers and buying newer ones to hold the duration at 10. The fund’s risk profile on day one and in year eight is roughly the same.

That has a real consequence for you as an investor. The RBI’s FAQ on government securities says that small investors can, to some extent, reduce market risk by holding a bond till maturity so they realise the yield at which they bought it. That option doesn’t exist in a constant maturity fund. There is no maturity date to wait for. The fund will carry 10-year duration risk for as long as you hold it.

A single bond grows less risky as it ages. A constant maturity fund never does, because the rules keep resetting it to 10 years of duration.

One small detail is easy to miss. The scheme characteristic is about Macaulay duration, while the scheme description talks about a constant maturity of 10 years. These are not the same thing. The RBI FAQ describes Macaulay duration as the time taken to recover the initial investment in present value terms. For a bond that pays coupons, part of your money comes back before the final date, so its duration is shorter than its maturity. To keep the portfolio’s duration at 10 years, a manager will usually need papers with maturities somewhat longer than 10 years. The exact mix depends on the coupons and yields at the time, so check the fund’s monthly portfolio and factsheet rather than assuming every bond in it matures in exactly 10 years.

Credit risk is low. Rate risk is not.

The RBI FAQ notes that G-secs carry practically no risk of default and are therefore called risk-free gilt-edged instruments. With at least 80% of assets in government paper, a constant maturity gilt fund has very little credit risk.

But the same RBI document is clear that “risk-free” refers to default, not to price. It lists market risk, which it describes as the adverse movement of prices because of changes in interest rates, as the first major risk of holding G-secs, followed by reinvestment risk and liquidity risk. It also spells out the basic rule: when market interest rates rise, bond prices fall, and when yields decline, prices rise. The yield of a bond is inversely related to its price.

A fund that is locked at 10 years of duration feels that relationship strongly, every single day. That’s the whole trade-off here: you take on almost no default risk and a fixed, fairly large dose of interest-rate risk.

Estimating the NAV hit: a worked example

The RBI FAQ explains modified duration as a version of Macaulay duration that tells you how much a security’s value changes for a one per cent change in yield. It shows the conversion with an example: a Macaulay duration of 1.86 years at a 9% yield with half-yearly coupons gives a modified duration of 1.86 / (1 + 0.09/2) = 1.78. We can use the same formula for a constant maturity gilt fund.

The figures below are hypothetical, chosen only to show the arithmetic. They are not the yield or returns of any actual fund.

Assumptions: the portfolio has a Macaulay duration of 10 years, a portfolio yield of 7.00% with half-yearly compounding, and you have invested ₹5,00,000.

Step 1, modified duration: 10 / (1 + 0.07/2) = 10 / 1.035 = about 9.66.

Step 2, a 0.50 percentage-point rise in yields: the approximate price change is 9.66 x 0.50 = about 4.83%, downward. On ₹5,00,000 that is a mark-to-market fall of roughly ₹24,150.

Step 3, a 0.25 percentage-point fall in yields: the approximate gain is 9.66 x 0.25 = about 2.42%, or roughly ₹12,080 on the same amount.

Step 4, putting it next to income: at a 7.00% yield, a ₹5,00,000 holding earns roughly ₹35,000 a year in accrual before expenses. The ₹24,150 hit from a half-point rise in Step 2 equals about eight months of that income.

Now run the same 0.50-point shock on a hypothetical portfolio with a Macaulay duration of 2 years at the same 7.00% yield. Modified duration is 2 / 1.035, or about 1.93, so the fall is only about 0.97%, close to ₹4,830 on ₹5,00,000. Same yield move, roughly one-fifth of the damage. That gap is the price of locking in 10 years of duration.

One caveat from the RBI FAQ: duration-based estimates work only for small yield changes, because the price-yield relationship is curved rather than a straight line. For a large move, treat these numbers as a rough guide, not an exact forecast.

In our hypothetical example, a half-point rise in yields wipes out about eight months of interest income in one go. That is what fixed 10-year duration means in rupees.

Rules this fund is exempt from

Because the portfolio is mostly sovereign paper, SEBI carves the 10-year constant maturity gilt fund out of several rules that apply to other open-ended debt schemes. According to the master circular:

• Liquid asset buffer: open-ended debt schemes must hold at least 10% of net assets in liquid assets, but overnight funds, liquid funds, gilt funds and 10-year constant maturity gilt funds are excluded.
• Liquidity risk framework: the AMFI liquidity risk management framework for open-ended debt schemes also excludes overnight funds, gilt funds and 10-year constant maturity gilt funds.
• Swing pricing: the mandatory swing pricing framework that kicks in during a SEBI-declared market dislocation applies to open-ended debt schemes except overnight funds, gilt funds and 10-year constant maturity gilt funds.
• CDMDF contribution: the “specified debt-oriented schemes” that must invest 25 basis points of their AUM in the Corporate Debt Market Development Fund exclude gilt funds, and the circular clarifies that this covers both gilt funds and gilt funds with 10-year constant maturity.

The logic is simple. These rules are mostly aimed at credit and liquidity stress, and the RBI describes G-secs as carrying practically no risk of default. For you, the practical takeaway is that a stressful exit day in this category should not come with a swing-pricing haircut on your NAV, though the interest-rate swing itself still applies.

Constant maturity gilt fund vs regular gilt fund

We covered the broader category in our guide to gilt funds in India. Here is how the two compare on what the SEBI definitions actually fix:

Neither is better in general. A regular gilt fund gives you a manager who may cut duration before rates rise, or get that call wrong. A constant maturity fund removes that judgement entirely. If you have your own view on rates, or you want a known, steady duration as one piece of a larger portfolio, the constant maturity version is easier to reason about. If you would rather outsource the timing, a regular gilt fund or a dynamic bond fund does that, with all the risk that comes with someone else’s call.

It’s also worth seeing where 10 years sits on SEBI’s duration ladder. The same circular defines a Medium to Long Term Fund as having a portfolio Macaulay duration between 4 and 7 years, and a Long Term Fund as greater than 7 years. A constant maturity gilt fund is therefore in long-duration territory by design, with the added restriction that it can’t drift.

How the benchmark ties in

For performance disclosures, the master circular requires debt schemes that are not in the up-to-one-year bucket to show their returns against an additional benchmark, the 10 year dated GOI Security. Its list of broad fixed income indices also includes the CRISIL 10 year Gilt Index. For a constant maturity gilt fund, that comparison is unusually direct, because the fund and the 10-year government bond are exposed to roughly the same part of the yield curve. When you read a factsheet, the gap between the fund’s return and the 10-year G-sec benchmark mostly reflects costs, cash drag and the exact papers held.

Who might use one, and who should skip it

This category tends to make sense for three kinds of investor:

• Someone who believes yields are more likely to fall than rise over their holding period and wants a clean, regulated way to take that view without picking individual bonds.
• A long-horizon investor who wants sovereign credit quality and can sit through several years of NAV swings without panicking.
• Someone building a debt allocation in layers, who wants one fixed-duration piece that won’t change character over time.

It is a poor fit for an emergency fund, for money you need in the next year or two, or for anyone who treats “government securities” as a synonym for “can’t lose money”. The RBI’s own FAQ lists market risk first among the risks of holding G-secs. A fixed 10 years of duration magnifies exactly that risk.

If you’d rather own government bonds directly and hold them to maturity, RBI Retail Direct lets individuals buy G-secs without a broker. That route gives back the hold-to-maturity option a constant maturity fund takes away, at the cost of managing the bonds yourself.

A quick checklist before you invest

1. Read the scheme information document and confirm it is in the 10 year constant maturity gilt category, not a regular gilt fund or a long term debt fund.
2. Check the current portfolio Macaulay duration and yield in the latest factsheet.
3. Run the worked example above with the fund’s own yield and a 0.25 and 0.50 percentage-point rise to see the rupee impact on your amount.
4. Compare the expense ratio across direct plans, since in a category this tightly defined, costs explain a large part of the gap between funds.
5. Match the holding period to the risk. A fixed long duration needs a long horizon, because short-term NAV swings can be sharp.

If duration itself is still fuzzy, our explainer on bond duration walks through why long G-secs move more when yields change, and our risk management guide covers how to size any single position inside a wider portfolio.

The bottom line

A 10 year constant maturity gilt fund is what happens when SEBI takes the duration decision away from the manager. At least 80% of assets sit in government securities and the portfolio’s Macaulay duration stays at 10 years. You get sovereign credit quality and a predictable, fairly high sensitivity to interest rates that never fades with time. In our hypothetical example, a half-point rise in yields cost about 4.8% of NAV, close to eight months of interest income. Know that number for your own amount before you buy, and hold this fund only with money that can wait out a rate cycle.

Disclaimer: This article is for education only and is not investment advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. The worked examples use hypothetical figures. Consult a SEBI-registered adviser before making investment decisions.