Target Maturity Funds

Target maturity funds are open-ended debt mutual funds that invest in a portfolio of bonds maturing on or before a specific target date — typically three to five years in the future. The portfolio is constructed using government securities, state development loans, or PSU bonds that align with the fund's maturity date, and is generally held to maturity rather than actively traded. As bonds in the portfolio mature, the proceeds are reinvested in instruments with the same target maturity year, maintaining the fund's duration profile. Target maturity funds offer investors predictability of returns similar to a fixed deposit, with the added benefit of indexation for taxation purposes (if held for more than three years under the old tax regime) and the liquidity of an open-ended mutual fund. The roll-down in duration as the target date approaches reduces interest rate risk over time, making these funds suitable for investors with a defined investment horizon matching the target year.