Mutual fund houses get bullish on target maturity debt funds

Nine schemes in the offing; visibility over returns key investor attraction

Fund houses, such as Aditya Birla Sun Life Mutual Fund (MF), IDFC MF, Edelweiss MF, and Mirae Asset MF, have filed offer documents with the Securities and Exchange Board of India (Sebi) to launch target maturity index funds. In a scenario when interest rates are likely to go up, such debt-passive schemes can reduce volatility if held till maturity.
 
Aditya Birla Sun Life MF has filed offer documents for Aditya Birla Sun Life SDL Plus AAA PSU Bond April 2027 60:40 Index Fund and Aditya Birla Sun Life SDL Plus AAA PSU Bond April 2025 60:40 Index Fund.
 
IDFC MF has filed for IDFC SDL Plus Gilt 2026 Index Fund and IDFC SDL Plus AAA PSU Bond Plus Gilt 2027 Index Fund.
 
Such funds have specified maturity dates aligned to the expiry date of underlying bonds and invest in government securities, state development loans (SDLs) or AAA-rated corporate bonds.
 
Like other passive funds, target maturity index funds replicate the composition of the underlying index and have specific maturity dates.
 
For example, Aditya Birla Sun Life SDL Plus AAA PSU Bond April 2027 60:40 Index Fund will mature in April 2027 and will distribute the maturity proceeds to investors after the date of maturity.

 
Says corporate debt trainer Joydeep Sen, “The interest rate hike in the coming months is imminent and target maturity debt funds are a good category to escape market-related volatility if held till maturity. Some of the biggest advantages of these funds are that there are almost no credit risks. There is liquidity and the portfolio maturity rolls down, reducing market risk.”
 
Market participants also say that in such funds, there is no mark-to-market volatility if investors hold till maturity and have predictable returns trajectory. The prices of fixed-income securities are governed by interest rates prevailing in the markets. Interest rates and price of fixed-income securities are inversely proportional. When interest rates decline, the prices of fixed-income securities increase. Similarly, when there is a hike in interest rates, the prices of fixed-income securities come down.
 
Some of the funds in the passive category have given returns in the range of 4.5-5.5 per cent in the last one year. Target maturity funds can either be index funds or exchange-traded funds.
 
Edelweiss MF has filed an offer document for Edelweiss CPSE Plus SDL Index Fund – 2029, while Mirae Asset MF has filed for Mirae Asset Nifty SDL Jun 2027 Maturity Index Fund.
 
The investment objective of Edelweiss CPSE Plus SDL Index Fund – 2029 will be to track the CRISIL [IBX] 50:50 CPSE + SDL Index - April 2029 by investing in AAA-rated PSU Bonds and SDLs, maturing on or before April 2029, subject to tracking errors.
 
Market participants say until now only a few fund houses have launched such funds and have assets under management of over Rs 60,000 crore. Going ahead, there will be more fund houses lining up such products.