What are target mutual funds and how to make money by investing in target maturity funds?

Target maturity funds offer good investment opportunities in debt markets.

Target Maturity Funds

We feel happy when we get high returns on our investments, low loan interest rates, and the best deals when we purchase. However, one cannot predict the right time as no one knows when it might come. Target maturity funds offer good investment opportunities in debt markets. You even have a reasonable return predictability. Having target maturity funds is a good idea as the increase in interest rates slows down.

While we all want to enter markets during the perfect time, we never know when it will be. You can only look at trends and try to decipher the market with tactical decisions. Capital markets have been volatile throughout 2022 due to inflation, rising interest rates, and geopolitical issues. Since May, the RBI has increased the benchmark interest rates by a whopping 190 basis points. It hikes the policy rate from an easy-going 4% to 5.9%. Market yields and policy rate rises have made fixed-income markets attractive. 

Read: Is the time right to invest in target maturity debt funds?

Can There Be A Further Rise in Interest Rates?

It would be best to consider whether interest rates will rise further when you invest in fixed-income funds. While we cannot be confident in the short term, the macroeconomic trends suggest that interest rates can marginally rise from their current position. While we may not be at the peak, we are most definitely getting close, and the interest rates should go down gradually. 

When are Target Maturity Funds a Good Investment Option?

Target maturity funds are apt when your investment horizon is aligned with the fund's maturity. The risk levels are lower if you stay invested till the maturity period and are helpful when you want to preserve your capital and have slight returns. It makes target maturity funds an attractive option for goals like your children's higher education or retirement. You can distribute your investments in target maturity funds over the upcoming months if you feel uncertain about the rising interest rates. You can even look at having various target maturity funds having different maturities. 

Read: Which are India's best debt mutual funds?

US Fed Rates

Looking at the movement of US Fed rates, we can see that the rates reached their highest at 6.5% before they came down in the mid-2000s. We saw a peak of 5.25% in 2007. While there is no guarantee, we expect the peak interest rate to reduce even during upcycles. 

It is an excellent time to invest in debt markets as our country's interest rate cycle will rise if it has to slowly. The rising interest rates bring about an attractive period for investment for the foreseeable future. Target maturity funds are debt funds that give a certain predictability in returns. The only criterion to meet is to stay invested for the whole duration of your fund. However, exiting is possible if you require funds for an emergency. It has a predefined maturity period that coincides with its index's maturity. 

What is a target maturity fund?

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.


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