With target maturity funds becoming one of the top investment options in the fixed income space, asset management companies (AMCs) are coming out with differentiated target maturity funds to present a better risk-reward proposition, maximise yields, and also to make their product stand out in a sea of offerings, a report by Business Standard stated.
As per the BS report, target maturity funds, which first started as fixed-tenure open-ended debt funds investing in papers of AAA-rated public sector companies, now have at least 10 varieties, if one looks at the asset mix of the portfolios.
There are now schemes that exclusively invest in gilt, state development loans (SDL), or AAA-rated corporate papers, it said, adding that beyond these, there is another range of schemes that has a different mix of these papers like Nifty AAA Bond Plus SDL 50:50 Index and CRISIL IBX 70:30 CPSE Plus SDL Index.
Industry officials told BS that fund houses have been forced to ideate new types of schemes, given the rising competition in this space.
At present, the different mix of assets has not led to a major difference in either past returns or in YTMs, which are a good indicator of future returns. There are five schemes maturing in 2025 and YTMs of all three are in the range of 7.36 percent-7.5 percent, according to Value Research data.
According to investment advisors and analysts, retail investors should not put too much thought into the asset mix when selecting a target maturity fund and go with an offering that has a maturity in line with its investment horizon.
Target maturity funds are passively managed debt funds that come with a specific date of maturity. They offer predictable returns if the investor stays invested until the date of maturity.
Going by the filings for new fund offerings with the markets regulator, Securities and Exchange Board of India, this trend is likely to continue. Fund houses have launched close to 50 schemes in this category in the past year, taking the total count close to 70., noted the report.
