Target Maturity Funds A New Way to Invest in Debt. Investors who are looking for a simple, predictable way to invest in debt funds must check out Target Maturity Funds (TMFs). These funds are becoming popular in mutual funds investment in India because they combine the benefits of debt funds with the clear view of a maturity date. If you want stability and visibility both at the same time in your fixed income investments, then TMFs might fit in your portfolio well.
What Are Target Maturity Funds?
Target Maturity Funds are a part of debt mutual funds, in which they mostly invest in the government securities, PSU bonds, or top quality corporate bonds which all mature around the same time. The fund itself has a fixed date of maturity, which is usually between 3–10 years.
When you make your investment in a TMF, then you hold it till they get matured, same like a fixed deposit. But different from FDs, TMFs provide market-related returns which can be better than traditional fixed income options if held till maturity.
SEBI Circular on Passive Debt Funds (TMFs)
How Do They Work?
-
TMFs mainly invest in a pool of bonds with almost the same maturity dates.
-
The fund manager holds these bonds till they get matured.
-
You get the advantage of predictable returns, which help you stay invested till maturity.
-
Risk on interest rate reduces as you get closer to maturity.
Key Benefits of Target Maturity Funds
-
Predictable Returns: If you hold the fund till they get matured, then you can predict the returns closer to the portfolio’s earning at the time of investment.
-
Lower Credit Risk: Most TMFs make investment in the government and public sector bonds, which are considered as the most safe option.
-
Tax Efficiency: If you hold for more than 3 years, then you get benefits of inflation adjustment on long-term capital gains, which makes them more tax-friendly compared to FDs.
-
Diversification: TMFs invest in various bonds, which helps with spreading risk across providers.
Check AMFI’s Guide to Debt Mutual Funds
Who Should Invest in TMFs?
-
Cautious investors who are looking for stable and fixed income options.
-
People who want to align investments with their future financial goals like for retirement, education of their children, or buying a house.
-
Investors who want an alternative to conventional fixed deposits with possibly better returns after tax.
Top 5 Multicap Mutual Funds with Best SIP Returns in Last 5 Years
Things to Keep in Mind
Before making an investment in TMFs, keep these points in mind:
-
Interest Rate Risk: If you pull out your fund before it gets matured, then you might go through losses if there is some change in interest rates.
-
Liquidity: They are usually flexible, so you can exit anytime you want, but early exit may put an impact on your returns.
-
Expense Ratio: Make sure to check the fund’s expense ratio. Because lower expense ratio leads to higher overall returns and RMFs often have lower costs as compared to actively managed debt funds.
How to Choose the Right TMF
-
Align the fund’s maturity rate with your future financial goals.
-
Check the type of owned bond, try to choose funds with the government and public sector bonds.
-
Don’t forget to do the comparison of expense ratio and yield-to-maturity (YTM).
-
Stay invested till it matures to get the full benefit.
For your best mutual fund portfolio strategy for 2025, including a Target Maturity Fund can really balance the risks and returns, mainly when the interest rates are unpredictable.
How to Avoid Loss in Share Market — 5 Golden Rules for New Investors in 2025
Final Thoughts
If you want an expected debt investment with better tax saving than conventional FDs, then TMFs can be a smart add-on to your mutual fund portfolio. They are getting popular in mutual funds investment in India, which offers a new way to plan for future goals with clarity.
Always do your own research on how to choose the right mutual fund in India before you start investing. Hang on to the financial goals, fit the maturity, and stay invested till the end. By following all these things you can make Target Maturity Funds work for you.