View on the Fund

Edelweiss All Weather Gold+ is designed to give returns that are higher than that of Gold in slowly upward trending markets. The idea is to help investors gain exposure to gold and generate a 13.7% IRR even in weakish markets. The product has the following payoff structure based the 3 year avg MCX Gold returns - **3yr MCX Gold returns < 10%**: Principal protection - **3yr MCX Gold returns in 10-20% band:** 5.7x of (MCX Gold returns - 10%) - **3yr MCX Gold returns > 20%:** absolute returns of 57% Effectively the product has stronger returns than the MCX Gold for 3yr MCX Gold returns in the 10-57% band. While this is clearly an attractive payoff structure in slowly upward trending markets, investors should recognise the core inherent risk in all MLD products - **Credit risk on the issuer:** the Issuer of the MLD is essentially guaranteeing this payoff structure (any change would be considered a credit-event and the issuer can be taken to bancruptcy court). The core risk accordingly is with regards the credit worthiness of the issuer: our view on Edelcap is given in our AMC view below - **Close ended product:** in case of a sustained market downcycle in the last 6 months of the product, exit MCX levels are impacted which can lead to lower returns. Unlike open-ended equity funds, there is no ability to simply hold on until markets recover.

Strategy

Leveraged returns in average gold markets (10-50% absolute MCX Gold 3 yr returns)

Fund's Strategy View

Edelcap effectively runs a derivatives trading desk which seeks to use a combination of futures & options in order to generate payoff structures that resemble the final payoffs to the investor. This is done via complex trading strategies utilising a complex blend of futures and options, with the risk managed by Edelweiss's internal derivatives trading desk.

Fund Performance

MLD returns are based on the payoff structure defined in the MLD structure - this can differ across structures & series.

View on AMC

Edelcap is an NBFC (not a traditional AMC) that issues market-linked debentures with attractive pay-offs. While evaluating MLD's, the main focus is really on the potential credit risk of the issuer. EdelCap securities appears to be reasonably well positioned - a A+ rating by CRISIL is driven by strong existing liqudity & a large value unlocking potential via asset-sales in subsidaries (that should provide enough liquidity to take care of potential credit quality issues around the lending book, but more importantly left-over risks related to security receipts related to sale of loans to the ARC).

AMC's Pedigree

- **Edelweiss background:** was considered amongst one of the best upcoming financial institutions, but faced issues in terms of asset quality in their lending book. After these challenges, the group went into an (a) aggressive asset monetisation phase to generate liquidity (6000 cr+ raised from 2016) by setting stakes & assets, (b) reducing risks by selling down problem loans to ARC & AIFs. This has allowed them to come back from the liquidity challenges they faced in 2018-19: with the management now transitioning towards an asset-light fee based model & a continued sell down of assets. - **MLD product has scaled consdierably:** Launched in 2008, Edelweiss has issued ~29,500 cr of MLDs and has returned over 25,700 cr of capital back to investors till date, with approx 3500 cr of outstanding MLDs on their books

AMC Team

The derivatives trading desk at Edelweiss Capital is one of the oldest & most experienced in the country, and they have been successfully running prop derivative strategies (including for MLDs) for over 2 decades.

Investment Philosophy

- **Senior & Secure Debt:** MLDs issued by Edelcap are senior (ranks higher in order of repayment) & secure debt - **Edelcap Balance Sheet (the issuer of the MLD):** Edelcap Securities is a subsidiary of the Edelweiss treasury, and accoridngly focuses primarily as an investments arm of the treasury, liquidity management and holds group company stakes. This specific entity has very low leverage (1.1x), but it is more important to consider credit quality & risk at the group level (where leverage is still low at 3x as of Jun-25).