Target maturity funds in India are gaining popularity for their predictable returns and low risk. These passive debt mutual funds invest in bonds with a fixed maturity date, aligning with investors’ goals. They’re a stable choice among investors. What are they, and why invest? Let’s break it down.
What Are Target Maturity Funds?
Target maturity funds in India are open-ended debt funds tracking bond indices, holding securities like government bonds or corporate bonds until a set maturity date, typically 3-10 years. TMFs primarily invest in high-quality debt instruments such as Government Securities (G-Secs), State Development Loans (SDLs), and AAA-rated corporate bonds.
For example, ICICI Prudential Nifty 5 Yr G-Sec Fund matures in 2027, investing in gilts. They offer clarity on tenure and yields, delivering 6-8% annualized returns, per SEBI data. In 2024, their AUM crossed ₹1.5 lakh crore, per AMFI, driven by passive investing trends.
Key Benefits of Investing in TMFs:
- Predictable Returns: TMFs are designed to provide investors with a clear return expectation at maturity. By holding bonds until their maturity date, these funds minimize the impact of interest rate fluctuations, offering stability in returns.
- Tax Efficiency: Investments in TMFs held for over three years benefit from long-term capital gains taxation at 20% with indexation. This tax advantage makes TMFs more attractive compared to traditional fixed deposits, which are subject to higher tax rates on interest income.
- Lower Interest Rate Risk: Since TMFs hold bonds until maturity, they are less affected by fluctuations in interest rates. This approach helps mitigate the impact of rising or falling interest rates on the fund’s value.
- Liquidity and Flexibility: Unlike Fixed Maturity Plans (FMPs), TMFs are open-ended, allowing investors to buy or sell units at any time. This flexibility provides liquidity without compromising on the structured investment approach.
Risks and Taxation:
Despite stability, target maturity funds in India face risks. Early exits before maturity expose investors to interest rate fluctuations—bond prices fell 2% in 2024’s rate hikes, per IBEF. Corporate bond funds carry slight credit risk, though AAA-rated bonds mitigate this. Taxation follows debt fund rules: gains are taxed at slab rates since April 2023, per SEBI, unlike equity’s 12.5% long-term tax (over ₹1.25 lakh). Moreover, liquidity is lower than liquid funds, per Value Research.
Who Should Invest:
Target maturity funds in India suit risk-averse investors with 3-10 year horizons, seeking predictable returns. They’re ideal for lump-sum investments or SIPs, aligning with specific goals. In 2024, debt inflows hit ₹1.2 lakh crore, per IBEF, with target maturity funds gaining traction. Check bond quality and maturity alignment before investing.
Conclusion:
In conclusion, target maturity funds in India offer a low-risk, transparent way to plan finances with fixed timelines. Aligning investment horizons with the fund’s maturity date and staying informed about tax implications are crucial for maximizing the benefits of TMFs. Ready to invest smartly? Explore more fund insights now!
– Ketaki Dandekar (Team Arthology)
Read more about Target Maturity Funds here – https://groww.in/target-maturity