Target-maturity funds: Poised to rise

A safe investment option that offers a high predictability of returns... For conservative investors, these words are Beethoven's symphony, Raaga Bhairav, basically the sweetest music to the ears. Given target-maturity funds have blended both these features, it is the new toast in town of fixed-income investments. And since its underlying bond yields are climbing due to increasing interest rates in recent months, these attractively-poised funds are whetting the appetite of savvy investors. Unsurprisingly, fund houses have taken a shine to them too. Not only have they revved up investor-awareness campaigns on target-maturity funds, they are also introducing more such funds in the market. The graph, titled 'Rise of target-maturity funds', highlights their growing popularity. Target-maturity funds: What you should know Broadly speaking, these funds invest in bonds and come with a fixed maturity. Let's now look at these funds in greater detail. High credit quality: Most of these funds invest in government securities, state-development loans, PSU bonds, among others. Those that invest in the slightly-riskier corporate bonds restrict themselves to the safest AAA-rated bonds. Given the relatively higher credit worthiness of the issuers, the default risk is very low. Passively managed: These funds basically replicate the performance of a chosen debt-based index and don't need a fund manager to actively track the gauge. All that the fund manager needs to do is to buy