Find Investment Amount for a Targeted Maturity Calculator

Given our fixation with guaranteed return goods and fixed return instruments, we are a country of savers. The numerous bank accounts, post office accounts, corporate deposits, and other minor savings schemes attest to the popularity of such goods. Several people have grasped the benefits of investing in Debt Mutual Funds for their higher yields and tax-efficient earnings when compared to bank deposit-type debt instruments in recent years.

For debt fund investors, the recent introduction of three Target Maturity Debt Funds is a breath of new air. Target Maturity Funds are Debt Funds having a set maturity date that corresponds to the maturity date of the bonds in its portfolio. These funds have a reduced interest rate risk and give more predictable and consistent returns, making them ideal for investors who prefer the dependability of bank deposits.

Target Maturity Funds Inside

Target Maturity Fund investments are passive bond investments depending on the composition of the underlying index, such as the Nifty SDL or the Nifty PSU bond. These funds are structured similarly to index funds or exchange-traded funds (ETFs), which mimic the index or indices to which they are linked. The index’s members are invested in with the goal of reflecting the index’s performance rather than beating it.

There is a set maturity in Target Maturity Funds, as reflected in the scheme name and practise. These funds have a group of bonds with comparable maturity dates that are constituents of the index they follow and are held until maturity. In principle, you get repaid your principal while also earning interest. The principal, like other mutual fund schemes, is not guaranteed, which is a risk that investors must consider.

Benefits of Target Maturity Funds

When investing in these funds, there are possible downsides and upsides depending on the method they employ. Let’s start with the positives.

Flexibility: These funds are flexible and come in a variety of tenures, with the goal of identifying pockets of high returns at any particular time. The structure of these funds is designed to reduce residual maturity, which implies that the underlying bonds’ maturity is lowering with each passing year. As a result, even as a set maturity date approaches, the duration risk continues to decrease, making the fund’s returns predictable.

Interest Rate Movements Have Little Influence: Because these funds typically pursue an accrual strategy – holding debt securities until maturity – increasing interest rate scenarios have no impact on the fund’s performance. Target Maturity Funds offer lower interest rate risk than standard bond funds since they retain their bonds until they mature, which is less troublesome in a rising interest rate environment, which can reduce investment value (unless you sell before maturity).

Tax Efficiency: When invested for more than three years, these funds not only give clarity and consistency in returns, but they are also tax-efficient compared to standard investing channels (taxed at 20% after indexation). Short-term capital gains are applied to assets that are short-term in nature, that is, investments held for less than three years, and are handled identically for both traditional investments and these funds (gains are added to income and taxed as per slab rates). Importantly, investing in these funds provides higher liquidity.


Traditional Investment Target Maturity Fund
Investment Amount (2017-18) ₹1 Lakh ₹1 Lakh
Assumed Rate of Return 6% 6%
Holding Period 3 Years 3 Years
Indexation N/A Available
Value on Maturity (2020-2021) ₹1,19,101 ₹1,19,101
Indexed Cost N/A ₹1,10,661 {(301/272)x 1,00,000}
Taxable Amount  ₹19,101 ₹8,439
Applicable Tax* ₹5,959 (5,730 + 229) ₹1,754 (1,687 + 67.5)
Post Tax Value ₹1,13,142 ₹1,17,346.5
Net Post Tax Return 4.20% 5.47%

* Traditional investments are taxed at 30% + 4% Cess, whereas Target Mutual Funds are taxed at 20% post-indexation + 4% Cess.

Target Maturity Mutual Funds: Flipside

No Track Record: The absence of a meaningful performance history and track record is the most significant drawback of this category. Furthermore, if the fund is not held to maturity, interest rate fluctuations will have a greater impact on your investment.

Limited Room For Fund Managers: A well defined investment universe also limits fund managers’ flexibility, as investments are limited to specified maturities and/or composition (within the index constituents).

Lower Than Index Returns Due to Tracking Error: The tracking error, which is the gap between actual returns and the related benchmark, plays a role. A large tracking error shows that the fund’s returns differ significantly from the benchmark’s. A reduced tracking error suggests that the benchmark and the fund follow each other closely, which is a good thing. If the tracking inaccuracy is substantial, investors should be concerned.


Que.1 Should You Put Your Money Into Target Maturity Funds?

Ans. We’re at a period where increasing inflation is a concern, exacerbated by the steady unwinding of liquidity measures, and no additional rate reduction from the RBI is likely. It’s better to put a part of your investment excess in a fund with a maturity that closely fits your investment horizon.

Que.2 What are the different interest rate risks while investing in Taret Maturity Funds?

Ans. These funds might be ideal if you have a medium to long-term aim. However, the liquidity they provide comes with interest rate risks: when rates increase, bond prices fall, and net asset values of a scheme decline as well. Only invest in Target Maturity Funds if you can keep them until they mature.