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Target Maturity Funds

Updated on March 3, 2023

A Target Maturity Fund (TMF) is a passive debt mutual fund which tracks a bond index and has a defined maturity date. On maturity, the investors get the investment amount along with the accrued interests.TMFs can come in the form of Exchange Traded Funds (ETFs) or Index funds. As per SEBI regulations, Target Maturity Funds can invest only in safe products like Government Securities, PSU bonds, State Development Loans and highly rated corporate bonds etc. and thus the credit quality of TMFs is quite good.

What are the features of Target Maturity Fund?

Features of Target Maturity Funds are:
1. The bonds in the TMF portfolios pay regular interest which is re-invested in the fund, thus benefitting its investors.
2. The maturity of securities in TMF portfolio is aligned with the maturity of the scheme, which helps in mitigating the risk.
3. Target Maturity Funds invest in securities with the highest credit rating which brings down the credit risk of these funds significantly.
4. These are passively managed i.e. they track specific fixed-income indices and invest in line with the index.

What are the benefits of Target Maturity Funds?

Benefits of Target Maturity Funds are:
1. These are suitable for specific goals with defined timelines and can be aligned with the maturity of the fund.
2. TMFs are good for relatively conservative investors with visibility of returns along with preservation of capital.
3. Target Maturity Funds provide indexation benefits as they are taxed at 20% post indexation for a holding period of more than 36 months.