Fund houses set to launch a slew of target maturity funds in coming months

Nearly 40% NFOs filed since July are for these passive debt funds

Mutual funds (MFs) are girding up for a raft of target maturity funds (TMFs) in the months to come. Between June and August, 22 of the 56 filings for new fund offerings with markets regulator Securities and Exchange Board of India were for these passive debt funds.

Aditya Birla Sun Life MF, HDFC MF, IDFC MF, Edelweiss MF, Mirae MF, Nippon MF, and Kotak MF are some of the fund houses that have filed for TMFs in recent months. The year of maturity for most of these schemes range between 2025 and 2037.

According to industry executives, the surge in interest by fund houses is driven by optimism that TMFs may emerge as a strong alternative to bank fixed deposits (FDs) that have historically received the lion’s share of household savings.

“The investor appetite is high in this category, given the simplicity and predictability of returns. They are very similar to bank FDs and gaining traction with retail investors,” said Radhika Gupta, chief executive officer (CEO), Edelweiss MF.

“TMFs are now the industry’s first choice for winning over FD investors. The launches are being lined up since the present yield scenario is good for investors to lock in returns,” said Swarup Mohanty, CEO, Mirae Asset Investment Managers.

Sirshendu Basu, head-products, IDFC AMC, said his fund house is bullish on TMFs as they are not just similar to bank FDs but also superior to them in certain aspects.

“One, they are open-ended unlike FDs, where you have to pay a penalty or lose partial returns in case of premature withdrawal. Two, investors can save on taxes if they stay invested for more than three years,” said Basu.

Fund houses are reliant on MF distributors finally starting to recommend TMFs, notwithstanding the low commissions. “Many MF distributors are using TMFs to bring FD investors into the MF fold since both products have similar features,” said Basu.

MF distributor Nitesh Buddhadev said he has not yet started recommending TMFs, but has seen his peers do so.

“Traction is there. Most of the rate hikes have already happened and investors would be looking to lock in returns via TMF. I know MF distributors who have been recommending TMFs, mostly as an alternative to bank FDs,” he said.

TMFs are passively managed debt funds that come with a specific date of maturity. They offer predictable returns if the investor stays invested until the date of maturity. Most schemes specifically invest in government securities and state government bonds.