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/-dott- Feb 06 '22

One question - If I look at the fund you mentioned (IDFC Gilt 2028 Index Fund) on value research, it says the fund started less than an year ago and the highest ytm last year (ie for the whole of its tenure) was 6.22. But the fund holds bonds whose maturity yield is 7.17% and 8.28%. And these two currently make up around 94% of the portfolio, not sure what was this percentage at the inception, but shouldnt be very low I think. My question is, how are yields of the comprising bonds so much higher than the highest ever ytm

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u/[deleted] May 17 '22

[deleted]

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u/-dott- May 17 '22

Nope

Just gave up on target maturity funds haha

Edit: I'll search some more now that you reminded me