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Expert view on rising popularity of Target Maturity Funds


Even as equity investors face heightened concerns over the current volatility in markets, here’s a category of mutual funds that can help investors generate returns with some degree of predictability.

To explore how target maturity products can benefit investors amidst rising interest rates,
Economictimes.com organised an
exclusive session on ‘Why Target Maturity Funds are becoming popular’ with our expert, Mahendra Jajoo – CIO Fixed Income, Mirae Assets Investment Managers (India) Pvt. Ltd., who discussed how TMFs offered better opportunities and why investors should prefer them over Fixed Maturity Plans (FMPs).

Owing to changing interest rates on guaranteed savings products, many risk-averse investors have moved towards debt funds. Debt funds are less volatile compared to popular equity funds, with the potential to offer better returns. However, investors are still prone to default risk, i.e risk of losing principal and interest payments, and interest rate risk, i.e price fluctuations due to changes in interest rates.

Target Maturity Funds (TMFs) help investors to more effectively navigate the risks associated with debt funds by aligning their portfolios with the fund’s maturity date.

Today, when the markets are facing a double whammy of higher inflation and rising interest rates, investors are looking for consistent returns.
“In case of Target Maturity Funds, the investor knows exactly when the scheme will be completed, what will be the portfolio quality, and what likely return the investor will get,” said Jajoo during the session, which was hosted as part of the
Wealth Wise Series with Mirae Asset Mutual Fund.

Unlike FMPs, TMFs are open-ended and are offered either as Target Maturity Debt Index Funds or Target Maturity Bond ETFs, as such, offering greater liquidity than FMPs. In case of FMP, there is no exit. In TMF, these are open-ended funds, so the investor can invest whenever he has surplus (funds) to invest or when he likes the market. Similarly, he can redeem if he has urgent liquidity retirement. So, they are far superior to FMPs, explains Jajoo.

With several options available even in target maturity debt passive products, how does one make a choice? Our expert shared his insights on how to select the right fund:

  1. The first is to choose the fund house where the investor can invest the money in a professional and balanced way
  2. Second is to look at the quality of the portfolio to ensure it has high quality credits or adequate liquidity
  3. Third is to look at the competitive returns being offered

“It looks like a very mechanical process, at the end of it there are multiple similar types of products offered, hence the selection process should be in the order of the assessment of the fund house in terms of its ideology, valuation process, quality of the portfolio, and the returns expected from this, basis which the investors can make a choice on how to pick a particular fund out of so many plans,” added Jajoo.

It’s mandatory for TMFs to invest in government securities, PSU bonds, and State Development Loans. Hence, they carry lower default risk compared to other debt funds. The session focussed on how investors can plan their debt fund strategy and use a checklist while choosing a debt fund.

Watch the full session to know more about Target Maturity Funds and their benefits.



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