Mutual funds are set to launch a number of target maturity funds (TMFs) in the coming months. Between June and August, 22 of the 56 filings for new fund offerings with markets regulator SEBI were for these passive debt funds, reported Business Standard.
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. Most schemes specifically invest in government securities and state government bonds.
Aditya Birla Sun Life MF, HDFC MF, IDFC MF, Edelweiss MF, Mirae MF, Nippon MF, and Kotak MF are some of the fund houses that have filed for TMFs in recent months. The year of maturity for most of these schemes range between 2025 and 2037.
According to industry executives, the surge in interest by fund houses is driven by optimism that TMFs may emerge as a strong alternative to bank fixed deposits (FDs) that have historically received the lion’s share of household savings.
“The investor appetite is high in this category, given the simplicity and predictability of returns. They are very similar to bank FDs and gaining traction with retail investors,” said Radhika Gupta, chief executive officer (CEO), Edelweiss MF.
MF distributor Nitesh Buddhadev said he has not yet started recommending TMFs, but has seen his peers do so.
“Traction is there. Most of the rate hikes have already happened and investors would be looking to lock in returns via TMF. I know MF distributors who have been recommending TMFs, mostly as an alternative to bank FDs,” he said.