Money Guru: If you want to invest with high interest rate, keep these things in mind? Know what are target maturity funds

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Money Guru: If you want to invest at high interest rates, know what options are available to you. In this too, we can talk about Target Maturity Fund, in which money can be locked in at higher interest rates. On the one hand, Target Maturity Fund invests in high quality paper of government bonds and on the other hand, the fund also gets the benefit of high liquidity with low risk. Today we know the benefits of Target Maturity Fund and when fourth tranche of Bharat ETF bond will come. For this, we are joined by Firoz Aziz, CEO of Anandrathi Wealth Management and Radhika Gupta, MD and CEO of Edelweiss AMC.

Rising rates, what to do with debt investments?

  • It is better to invest in debt funds at rising interest rates
  • 7% pre-tax return on debt funds and 6.5% on FD
  • 17 Types of Debt Funds Better returns than FD in many categories
  • Different types of debt funds invest in government bonds

FD vs Debt Fund

Invest in FD loan funds

Amount `1 Crore `1 Crore
Income 6% 7%
Holding period 3 years 3 years
The amount is `1.19 crore to `12.25 crore
Index price (4% inflation) – `11.24 crore
Tax on gain `19 lakhs `10 lakhs
Tax liability `5.95 lakh `2.08 lakh
The amount after tax is `1.13 crore and `1.20 crore
Income after tax 4.20% 6.39%

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What are Targeted Maturity Funds?

  • Fall under the category of passively managed debt funds
  • The maturity date of these funds is fixed
  • Maturity from 1 to 30 years
  • Invests in government bonds
  • Also invest in bonds of public sector companies
  • The interest earned during the holding period is then invested
  • Greater advantage in remaining until maturity
  • Funds follow a roll-down strategy

Features of Targeted Maturity Fund

  • Lock-in investment opportunity at high interest rates
  • Useful in reducing risk on interest rate changes
  • It has higher liquidity than other investment options
  • Entry and exit of Target Maturity Fund anytime
  • Better returns in target maturity funds
  • Index Benefit is available in Target Maturity Fund

Target Maturity Fund or Debt Fund

  • TMF stands for Target Maturity Fund
  • YTM of TMF at 7.30%
  • 7.15% YTM of active debt fund
  • Advantages of holding to maturity in TMF

Why Choose Targeted Maturity Fund?

  • A good option for low risk and better returns
  • Very low credit risk in TMF
  • There is no interest rate risk if held to maturity
  • 20% LTCG+indexation benefit withheld for more than 3 years
  • Anytime Exit Facility
  • Very low fund management fees

Keep in mind before investing in target maturity funds

  • Suitable for an investment period of 5 or more than 5 years
  • Resistant to short-term volatility if held to maturity
  • Risk of lock-in investments at low interest rates
  • Fund’s past record is not available

Bharat Bond ETF

  • A safe way to invest in the market
  • Higher returns than FD or tax free bonds
  • Investment in AAA rated securities of Public Sector Undertakings
  • Bharat Bond ETF was first launched in 2019
  • AUM has crossed 50 crore since inception
  • The scheme is managed by Edelweiss Asset Mgmt. By
  • A fourth tranche of Bharat Bond is likely in December

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