Target Maturity Debt Funds: Is it a good investment option at this time?

Amidst these turbulent times, all investment seems iffy. What can you possibly invest in without a doubt? Read on to find out

Are target maturity debt funds a good investment option at this time

Target maturity funds, also known as debt funds with a specific maturity date, are quite popular as of right now because of supposedly being a good way of navigating through the current volatility in the debt space. The mutual fund advisors and fund managers have agreed that the spike in 10-year government yields has made them a great option to consider for those who want to invest in debt mutual funds for a long-term goal rather than shorter time durations. They have been a hot topic in mutual fund news recently. 

Also Read: How To Invest In The Best Debt Mutual Funds 

"Target maturity funds allow investors to lock-in their investments in a specific segment of bonds where yields are attractive. Currently, yields in the longer maturity segment between 5 to 10 years have gone up and investing Target Maturity funds with 2026 to 2032 maturity looks like a reasonable opportunity for long term investors" said Niranjan Avasthi, Head Product, Marketing and Digital Business, Edelweiss Mutual Fund. 

Evidently, the month of January in the year 2022 has been turbulent in the worst possible ways for global bonds. The bond yields increased in developing and developed markets. The participants were forced to adjust their positions amidst this uncertainty. 

Also Read: Can debt funds beat inflation and interest rates?

The bond market is predicted to stay volatile in the net future and debt mutual funds have not been very promising when it comes to returns. A lot of the debt fund categories were in danger after the latest budget. Safe to say, the RBI's decision to maintain the status quo has been a weight lifted off everyone's shoulders. The debt funds are under uncertainty due to the impact of the rate hike. All of these situations have caused the market to be unreliable and shaky. 

Therefore, mutual fund advisors are advocating for target maturity funds as a way for investors to get good interest rates instead of losing anything more on the returns. They can invest for the specified period and rely on the returns as they hold a certain amount of predictability as opposed to debt funds. 

"Considering that fixed-income investors in India have traditionally wanted three things from their fixed-income investments - predictability of returns, a predefined period to hold investments and liquidity in case of emergencies, debt target-date funds are a good choice for investors to look at in their portfolio," says Vishal Dhawan, a certified financial planner, & CEO of Plan Ahead Wealth Advisors. 

"These schemes are created tracking different indices, which could be PSU bonds or government securities or state development loans or combinations of these underlying instruments. Since they are passive funds and also have low costs, they could be an efficient choice. Investors will need to ignore the mark to market impacts in the short to medium term, as they are likely to hold these schemes to maturity date in most cases anyways," says Vishal Dhawan.

Also Read: Mutual funds: The different types of funds available

Final Thoughts

The target maturity funds are a good way for investing for those who are looking for long-term financial goals and can ignore short-term volatility in the market. 


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