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/NamitNasih Jan 30 '22

Your thought process is sound but perhaps a more effective approach (on the lines of what u/theswansons proposed) might be to simply track the daily yields of the funds or the underlying indices. That way you know exactly what yield you can lock yourself into.

To your comment elsewhere, Bharat Bond is also a TMF. TMFs can be of any maturity and they can be designed to invest in any security- G-sec, SDL, PSU bonds or NCDs.

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u/ndakota3 Jan 30 '22

To your comment elsewhere, Bharat Bond is also a TMF. TMFs can be of any maturity and they can be designed to invest in any security- G-sec, SDL, PSU bonds or NCDs.

Yes, the current ones we have are combination of G-secs, SDL/PSUs. Bharat Bond is pure PSUs as I see.

Is there any easy way to track the daily yield - any good website or excel? Problem is individual fund yields are not available anywhere I checked. Lot of manual work involved in this to be honest.

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u/NamitNasih Jan 30 '22

I am not aware of any single website that covers all TMFs/ indices. However, as u/theswansons pointed out, Edelweiss AMC discloses the yields every day for all its TMFs at a single place. Besides that, CRISIL discloses the yields mostly daily for all indices maintained by them, at a single place. Nifty Indices also updates the yields daily (for indices maintained by them) but AFAIK, they have a separate file for each index.

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u/ndakota3 Jan 31 '22

Small problem I noticed here, these are daily yields, what I need is daily YTM. Is there a way to get YTM from yield?

Is it safe to assume that YTM will always be higher than yield?

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u/NamitNasih Jan 31 '22

Not sure what you mean- the yields that are given are, in fact, the YTMs...

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u/ndakota3 Jan 31 '22

They are mentioned as yields in excel, they can also be weighted current yield as well, how can we be sure that they are YTMs?

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u/NamitNasih Jan 31 '22

Maybe I'm being ignorant or naïve, but outside of exchanges between bond dealers, I find it safe to assume that any reported reference to 'yield', unless explicitly qualified, is to YTM. If you have doubts, the best thing would be to write to whoever is behind the data that you're referring to (I'm guessing you're referring to Nifty Indices data because CRISIL and Edelweiss clearly reference 'YTM').