Target Maturity Funds a type of debt fund in bonds of defined maturity, have gained in popularity as a higher-return safe investment.
It consists the fund’s benchmark index, such as Nifty PSU bond or the Nifty SDL (State Development Loans) Index. These Funds are high in credit quality, but unlike bank fixed deposits, they are not immune to interest rate risk.
Such type of funds, carry lower interest rate risk and provide more predictive and stable returns. These funds have no default risk since the investment is in government securities and highly rated bonds of public sector companies.
Are target maturity funds an alternative to fixed deposits?
You can invest in target maturity funds if you fall in the higher income tax brackets. It is taxed similarly to debt-oriented funds.
You may invest in target maturity funds instead of fixed deposits only if it matches your investment objectives and risk tolerance. You may avoid these funds if you cannot hold them until maturity or fall in the lower income tax bracket.
Target maturity funds are a passive investment in bonds of a similar maturity constituting the fund’s benchmark index, such as the Nifty PSU bond or the Nifty SDL. It is an open-ended debt scheme with a specified maturity date.