paragraph

Mutual funds that invest in safe debt instruments and assure investors to give a fixed amount at the time of redemption are known as target maturity funds (TMFs). They are essentially a blend of several bonds which have a similar maturity date.

The target maturity funds are meant for low-risk investors, or as safe allocation in the portfolio of investors with moderate or high risk. For instance, an investor aims for a return of 12 percent per annum from equity allocation, and invests 60 percent there. At the same time, he also parks 15 percent of portfolio in fixed income instruments such as fixed deposits. He also intends to invest the remaining 25 percent of the portfolio in not-so-risky bonds to meet financial goals.

For these funds, he can choose target maturity funds (TMFs) which are safe instruments and promise to give a fixed maturity sum at the end of tenure.

There are several advantages of investing in TMFs. First and foremost, they are as safe as government bonds since investments are made in state development loans (SDL), AAA-rated PSU bonds or government securities.

Another advantage is that there is no interest rate risk, especially if they are held to maturity or for longer than three years. Last, but not the least, these fund units are liquid and can be redeemed prior to their maturity.Forms of target maturity fundsThe target maturity funds (TMF) are debt-centric and can be structured in a couple of ways.The first one to structure them is to link them to a custom-made index. They are structured to follow a set pattern of debt instruments so that they grow to reach their financial goal.&nbsp;

They can also be structured like exchange traded funds (ETFs). These funds are more liquid than regular funds because they are tradeable in stock markets. To buy them, investors ought to have a trading account and a demat account.On the face of it, target mutual funds are similar to FMP, but they are considerably different. Unlike TMFs, the FMPs are not liquid, and hence not easy to find their buyers. On the contrary, TMF can be redeemed via AMC or on exchange.In summary, target mutual funds give assured returns at the end of the fund’s lifetime. However, if your financial goal is to earn substantial gains, then they should not be your ideal choice.

What are target maturity debt funds or defined maturity bond funds?

Michael Longmire

Debt mutual funds that are liquid and assure to give a fixed amount on maturity to investors are target maturity funds. Read further to understand the nuances of this new category of financial instruments.

What is no-cost EMI? Do they involve any cost in it?

Looking to invest in mutual funds for dividends? Here’s how dividends in equity

Physical gold vs digital gold: Which one should you prefer?

Key things to keep in mind before investing in a mid-, small-cap fund

PPF vs ELSS: Which is a better tax saving instrument

Active and passive investments: We tell you the good and the bad

5 reasons why treasury bills are a great investment tool for retail investors

Are ETFs better than index mutual funds?

4 ways capital gains taxed on your equity and debt funds

Markets Last Week: 9 of top 10 firms saw market cap rise of ₹79,798 crore; TCS, Infosys biggest winners; See full list

The market valuation of TCS jumped ₹17,215.83 crore to ₹12,39,997.62 crore. Infosys added ₹15,946.6 crore taking its valuation to ₹6,86,211.59 crore.

Gold imports fall 17% in April-October to $24 billion

Imports of the yellow metal stood at USD 29 billion in the corresponding period of 2021-22. The imports during October this year also contracted by 27.47 per cent to USD 3.7 billion, the data showed.

Rupee should stabilise once US reduces speed of its rate increases: Economics Nobel winner Douglas Diamond

Diamond, a Merton H Miller Distinguished Service Professor of Finance at the University of Chicago's Booth School of Business, shared the Nobel Prize with former US Federal Reserve Chair Ben Bernanke and US-based economist Philip H Dybvig for their research into the fallout from bank failures.

FPIs flock to Indian market; buy shares worth ₹31,630 crore in November

Rising expectations of aggressive rate hike cycles nearing an end on relatively easing inflationary curve, better than expected US macroeconomics data and resilience of the Indian economy compared to global counterparts are also driving FPI inflows.

What is a deposit insurance? All you need to know

The insurance of deposits in banks is called deposit insurance. Read further to find out how much do banks owe us in case they go bankrupt