The federal rates in the US are at an all-time high, and the RBI has also kept the repo rate unchanged in the recent Monetary Policy Committee (MPC) meeting. As per experts, the interest rates have achieved their peak, at least for now. 

 

Investors, especially those investing in debt securities, can turn this situation to their advantage. Target maturity funds (TMFs), a type of debt fund, are one of the best investment avenues in the debt category.

 

These funds have increasingly been gaining the trust of investors since their introduction in December 2019. The asset under management (AUM) of target maturity funds have increased from ₹29,600 Crores in October 2020 to over ₹1.21 Lakh Crores as of October 2022.


To know more about target maturity debt funds, returns, benefits as well downsides of investing in them, read on.

What are Target Maturity Funds?

Target maturity funds are passively-managed funds that make investments in bond securities. These funds come with a fixed tenor, which means that you will get the principal as well as the interest when the maturity period ends. 


The target maturity fund returns are linked with the performance of an underlying index like the Nifty SDL or the Nifty PSU Bond index. In simple words, a typical TMF scheme will feature bonds having similar maturity timelines, with these bonds being constituents of the underlying index.

Benefits of Investing in Target Maturity Funds

The following are some perks that you get to enjoy when you invest your money in TMFs:

Open-Ended Scheme

As these are open-ended schemes, you can liquidate your principal at any time, which would attract capital gains tax depending on the time of redemption

Minimal Interest Rate Risk

 The movements in interest rates do not affect your target maturity fund returns because they follow an accrual strategy.

Tax-Efficiency

 In the long-term, these debt funds are taxed at 20% after indexation, helping investors earn higher net post-tax returns when compared to traditional investments.

Flexibility

These funds are flexible and come with varying tenors, allowing you to identify pockets of yield for a given period.

Drawbacks of Investing in Target Maturity Funds

Here are a few downsides of investing in target maturity funds:

  • Lack of Performance Record: TMFs were launched only at the end of 2019 and, thus, lack a long record history. This makes it difficult for investors to establish a trend.

  • Interest Rate Risk on Early Redemption: If you decide to exit before the maturity date, you may miss a decreasing interest rate trend that may help you earn higher returns.

  • Fund Managers Have Limited Manoeuvring: Since these funds have a well-defined investment strategy, fund managers get little space to influence returns.

  • Passivity: TMFs rely on passive management, which is not exactly a drawback as you can use its simple and predictable strategy for your benefit.

Top Target Maturity Funds in India in 2023

The following table presents some of the top target maturity funds in India in 2023: 

 

Scheme Name

Asset Under Management (AUM) (in Crores)

Maturity Period: Less than 3 years

Bharat Bond ETF – April 2025

₹9,564 Crores

Bharat Bond ETF – April 2023

₹8,067 Crores

Aditya Birla SL CRISIL IBX – June 2023

₹2,227 Crores

Maturity Period: Between 3 years and 5 years

Aditya Birla SL Nifty SDL Plus PSU Bond Sep 2026 60:40 Index Fund

₹10,585 Crores

SBI CPSE Bond Plus SDL Sep 2026 50:50 Index Fund Direct - Growth

₹11,298 Crores

Edelweiss NIFTY PSU Bond Plus SDL Apr 2026 50:50 Index Fund Direct - Growth

₹10,229 Crores

Maturity Period: Between 5 years and 10 years

Bharat Bond ETF – April 2030

₹15,277 Crores

Bharat Bond ETF – April 2031

₹11,650 Crores

Bharat Bond ETF – April 2032

₹8,380 Crores

Maturity Period: Between 5 years and 10 years

Bharat Bond ETF – April 2033

₹2,962 Crores

SBI CRISIL IBX Gilt Index - June 2036 Fund Direct – Growth

₹2,048 Crores

Edelweiss CRISIL IBX 50:50 Gilt Plus SDL April 2037 Index Fund Direct – Growth

₹791 Crores

Disclaimer: The funds mentioned above are not ranked in any particular order and are intended purely for informational purposes. The aforementioned AUM specifics are as of August 2, 2023 and are subject to change.

Should You Invest in Target Maturity Funds?

With policy rates at their peak in the current phase, target maturity funds seem like a smart choice for most investors. However, you must choose an investment tenor that matches your ability to hold funds in this particular scheme.

 

These funds come with interest rate risk if you exit before the end of the maturity period. Hence, make sure that you hold these funds until maturity for optimal returns. 

 

One of the prime reasons that investors are willing to take bets on these funds is because they allow simple, predictable, and low-cost passive management. Apart from that, being an open-ended fund, they do offer high liquidity too.

FAQs on Target Maturity Funds

You can invest in target maturity funds by heading to the ‘Mutual Funds’ section of the website of a financial entity offering these funds. Compare different funds and select the one with which your financial goals align.

While the top target maturity funds will vary based on several factors, there are a few notable options to consider. With a tenor below 3 years, the Bharat Bond ETF – April 2025, Bharat Bond ETF – April 2023, Aditya Birla SL CRISIL IBX – June 2023, are some target maturity funds worth considering.

Currently, there are 82 target maturity funds available in India. These include multiple series of Bharat Bond ETFs with different maturity periods. 

Credit and interest rate risks are generally associated with debt securities. However, since target maturity funds only invest in high-quality funds, you can easily mitigate these risks.

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