Making sense of investing in target maturity debt funds

Henil Shah
Making sense of investing in target maturity debt funds 1833 0

Nothing is better than debt mutual funds to have an exposure to fixed income for retail investors. However, during the rising interest rate scenario, it is quite difficult to benefit from debt mutual funds unless they follow an accrual strategy. Accrual strategy is nothing but holding debt security until maturity. Further, returns of such funds are quite predictable. Hence, fixed maturity plans (FMP) are the ones, which become ideal in such a scenario but being a closed-ended fund, it becomes difficult to exit them until they reach maturity. 

However, what if you have a fund that is similar to FMPs but is open-ended; does it mean that you can exit them anytime? Recently, Edelweiss Nifty PSU Bond Plus SDL Index Fund – 2026 was launched, which is a target maturity debt fund that mimics the Nifty PSU Bond Plus SDL index maturing in April 2026. Nifty PSU Bond Plus SDL index tracks AAA-rated PSU bonds issued by the government-owned entities and state development loans (SDL) that are maturing between November 1, 2025 and April 30, 2026. Click here to know more about the fund. 


What are the target maturity debt funds? 

Target maturity debt funds are the debt funds that have a specified maturity date, which is aligned with the expiry date of the bonds that it has in its portfolio. Moreover, these funds usually provide more predictive and stable returns. Further, these funds carry comparatively lower interest rate risk. 


Should you consider investing? 

Firstly, there are only two target maturity funds to be precise, one from Edelweiss and the other from IDFC. Furthermore, target maturity is only five years to seven years as of now. This means no major difference for a SIP investor. However, for conservative investors, this can be one of the perfect choices to have exposure to fixed income. Also, due to its nature, you can efficiently allocate them to your financial goals. Further, these funds can also help in lowering your overall risk of the debt fund portfolio. 

So, if you are a conservative investor and looking for a medium-duration fund (as of now), then you can surely consider investing in such funds. Also, if you are on your journey towards wealth creation and wish to lower your overall portfolio risk, then also, you can consider investing in them. However, others, whose investment horizon is above five years, are still better off in actively managing their fixed income portfolio.

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