Target maturity funds may help in locking the portfolio yield for a fixed period if held till the maturity. Raghuveer Sampath: Being open ended, Target Maturity Funds offer liquidity benefit to an investor. What are the main benefits of investing in Target Maturity Funds? This means that the fund may have investment in long tenured bonds as well as money market instruments, which makes them sensitive to the changes in interest rates. Raghuveer Sampath: In an actively managed open-ended debt scheme, the fund manager is focused on the duration of the overall portfolio of the scheme and not maturity of individual bonds. Ratna Rathore: Target Maturity fund track the underlying index and invest in bonds specified in that index that mature on or before a given date. But how are these funds different from other open-ended debt mutual funds? Raghuveer Sampath: That’s easy to understand. These are part of the underlying bond index having maturities hovering around the fund's stated maturity. They are passively managed funds comprising bonds of mainly Public Sector Undertakings and/or State Development Loans.
Ratna Rathore: Ok So Let’s first understand what TMFs or Target Maturity Funds are? Target Maturity Funds are open ended debt mutual fund schemes that invest into a portfolio of an underlying index. RBI’s successive rate hikes in the recent past to bring inflation under control and the rising bond yields is impacting the yields on debt mutual funds.
Raghuveer Sampath: Ratna, Most central banks are dealing with persistently high inflationary pressure. Raghu there seems to be a lot of buzz regarding target maturity funds… What are these funds and why are they relevant in the current market situation? Ratna Rathore: Hi and I am Ratna Rathore. Raghuveer Sampath: Hello and welcome to this week’s edition of our podcast.
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