SBI Mutual Fund, India’s largest mutual fund house, recently launched two funds: SBI CRISIL‑IBX 10:90 Gilt + SDL Index – Dec 2029 Fund and SBI Nifty G‑Sec Jul 2031 Index Fund. These are both target maturity funds that come with a fixed maturity date.
But how do target maturity funds work, and are they right for you? Let's find out.
How do target maturity funds work?
Target maturity funds are passive debt index funds—or exchange-traded funds (ETFs)—that hold a defined basket of bonds until every security in the portfolio matures. The fund name carries the maturity date. For example, the SBI CRISIL-IBX 10:90 Gilt + SDL - Dec 2029 Fund matures in December 2029, while the SBI Nifty G‑Sec Jul 2031 runs until July 2031. When the final securities mature, the scheme winds up and returns capital to investors.
These are passive schemes, meaning the fund manager does not actively pick bonds. Instead, the fund tracks a preset index, buying and holding its constituents until maturity. This held-to-maturity structure means that interim bond yield movements do not affect the final return, as the investor stays put until the fund closes.
“The structure is simple: when yields are relatively high, investors can buy these funds and hold them until maturity. Investors essentially lock into the yield available at the time of investment. With yields having moved up, this is actually an even better time to consider these funds,” said Joydeep Sen, a corporate trainer (financial markets) and author.
Are they right for you?
Vikram Dalal, managing director at Synergee Capital Services, said, “Target maturity funds are suitable for investors who can match their investment horizon with the fund’s maturity date. While investors can exit before the fund matures as these are open-ended funds, early exits may not fetch the fund’s indicative yield at the time of launch.”
One way to use target maturity funds strategically is to stagger investments across funds with different maturity dates: one maturing in 2027, another in 2029, and a third in 2031, for instance. As each tranche matures and returns capital, you reinvest at prevailing rates. In a rising interest rate environment, this laddering approach ensures you're not locked entirely into current yields; successive tranches benefit from higher rates as they come.
However, not all target maturity funds are built alike. Depending on the mandate, a fund may invest solely in government securities (G-Secs), a mix of G-Secs and state development loans (SDLs), or in SDLs paired with public sector unit bonds.
Each combination carries a different yield and credit profile. Pure G-Sec funds offer the highest sovereign safety; SDL and PSU bond funds, backed by state governments and government-owned companies, respectively, are considered quasi-sovereign and typically offer marginally higher yields in exchange.
Investors should look for funds that match their risk appetite and timelines. In other words, pick a fund that will mature when you actually need the money.