Why you should look at target maturity MFs

Investors eyeing predictable returns, better tax benefits, and liquidity could consider target maturity schemes by mutual funds before March 31. These debt schemes invest in government securities, PSU bonds and state development loans (SDLs) with a pre-decided maturity.By putting money in these products before Wednesday, investors would get indexation benefits of an additional year, which could boost returns by as much as 15-25 basis points.Edelweiss Nifty PSU Bond Plus SDL Index Fund-2026 invests in a mix of PSU bonds and SDLs, IDFC Gilt 2027 Index Fund and Gilt 2028 Index fund invest in government securities while Nippon India ETF Nifty CPSE Bond Plus DSL -2024 invests only in SDLs. For investors eyeing maturities in 2030 and 2031, Bharat Bond FOF is an option. While they could earn between 6% and 6.3% before expenses and tax on the schemes that mature in 2026-2028, they could earn between 6.8% and 6.85% for the Bharat Bond ETFs that invests in a portfolio of PSU bonds and matures in 2030 and 2031 and about 5.8% on the scheme maturing in 2024. “Target maturity funds give you a good quality portfolio comprising of G secs, PSU bonds and SDLs with a low cost, liquidity and visibility of returns,” says Tarun Birani, founder, TBNG Capital Advisors. He said such funds can be considered if the investment time frame matches that of the target maturity date of the scheme.Target maturity funds have a defined maturity and passively invest in bonds of a similar maturity constituting the fund’s benchmark index. On maturity of the fund, investors are returned their investments. Since they are open ended, there is intermittent liquidity and investors can buy and sell at NAV. In case, it’s an ETF they can buy or sell it on the exchange. After the sharp surge in bond yields, fund managers believe investors should not wait further.“Recent increase in bond yields should be taken advantage of rather than waiting for further increase in yields in 2021-22 or beyond,” says Dhawal Dalal, CIO (fixed income), Edelweiss Mutual. Investors with a horizon of at least three years could consider investing at least 50-60% of their investable surplus in FY21 to benefit from additional indexation and rest in the first half of 2021-22, said Dalal.With retail investors worried about credit risks after the Franklin Templeton episode and volatility in debt funds after bond yields surged by 30 basis points leading to negative returns, financial planners said target maturity funds offer a mix of predictability in returns and low credit risks.

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