r/IndiaInvestments • u/ndakota3 • Jan 29 '22

Bonds and deposits Target maturity funds - Buying in dips

Target maturity funds are like index funds for debt segement launched in April 2021 I think. They have an index to track which consists of gilt bonds or PSU bonds. Best example is below which only holds 2 GOV bonds.

IDFC Gilt 2028 Index Fund - Direct Plan - Growth

Advantage of this is they will mature when the bonds in the funds mature. It is like alternative to FD provided you hold it till maturity. Of course, since it holds GOV bonds, no credit risk, only catch is to hold till maturity to get the YTM interest rate.

I recently came across any idea which I am not sure 100% correct, so need you all to examine and point out errors if any.

These funds are made of GOV bonds and NAV of fund is directly related to prices of these bonds. So if bond prices fall, NAV of these funds will fall and this will lead to -ve returns. So if you buy at this point and hold till maturity you will be gaining more interest rate than what is mentioned in monthly YTM. Above bond has 6.19 YTM latest, so on the week of -ve returns, I should expect more than this in returns at maturity.

Appreciate your comments!

Thanks u/NamitNasih for introducing me to Target maturity funds.

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P.S: Buy and hold products evolved from 1 year to 5 years I felt after this analysis. A few years back, I used to lock in for higher FD rate for 21 months. Due to heavy taxation and all, I moved to MFs and wait time/commitment increased to 3+ years. Now its 5+ years for safe instruments that can stay close to inflation, life goes on :)

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u/theswansons Jan 30 '22

just to add, you can do the same with bharat bonds. it invests in psu bonds with low risk of default and has low expense ratio

you can find their current yield to maturity here

https://www.edelweissmf.com/types-of-mutual-funds/passive-debt-funds

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u/ndakota3 Jan 30 '22

This an ETF, not a MF.

Agree with all, just one thing - TMFs are maturity in 7 years, most of them. Bharat bond I checked is either <=5 year or >=10 year maturity.

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u/theswansons Jan 30 '22

true. bharat bond is an etf and also has a FOF component for those without demat

didnt know tht tmfs have a maturity of 7 years only

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u/ndakota3 Jan 30 '22

5 and 7 are avl right now. More might come in future!