Investing Basics

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Women’s Day

Decoding Target Maturity Fund

Recently the Reserve Bank of India increased the repo rate for the sixth time on account of upbeat inflation numbers. With the interest rates hovering at their peak, investors can look at locking into G-Sec Oriented Index Funds targeting the 2027-2028 segment, especially keeping 3-year taxation benefits in mind.

Target maturity funds are passively managed open-ended debt funds which track predefined fixed income index. These funds have a fixed maturity and the potential to generate healthy risk adjusted performance. They follow a predefined index having securities maturing on or before a maturity date of the index.

One of the striking features of target maturity funds are that they have the potential to immunize investors against interest rate risk as bonds are held till maturity. Besides that, relatively lower interest rate risk, coupled with relatively stable returns, has also been attracting investors.

Some of key benefits of investing in target maturity funds are as follows:

Optimal yields: Offers relatively attractive yielding investments as these funds allow the investor to negate the impact of rising interest rates if they are held to maturity

Liquidity: Presents liquidity through investments in gilt and redemption feature with open ended nature which allows you to invest or withdraw anytime

Quality & Safety: Relatively low credit risk due to mix of quality debt papers such as Gilts (Government Securities), State Development Loans (SDLs), Public Sector Undertakings (PSUs), Treasury-Bills (T-Bills) and Other bonds

Roll Down Strategy: Buy to hold investment strategy as roll down maturity feature help achieve expectable returns over the target period

Indicative returns: If investors hold these funds till maturity, they can expect to earn the indicative yields as the yield-to-maturity (YTM) metric indicates the expected return

Tax Treatment: For investment tenures of 3 years plus, you can enjoy benefits of long term capital gains taxation. Long term capital gains in target maturity funds are taxed at only 20% after allowing for indexation benefits.

Cost Efficient: Given the passive investing structure of target-maturity funds, they have considerably low expense ratios

Who should invest?

• Suited to investors whose investment horizon matches the tenure of these funds
• Ideal for investors who are looking for a product similar to FMP’s (Fixed Maturity Plans)
• Investors looking for a passively managed debt fund at low cost

An Investor Education & Awareness Initiative

Investors should deal only with Registered Mutual Funds, to be verified on SEBI website under Intermediaries/Market Infrastructure Institutions”. Refer to www.assetmanagement.hsbc.co.in for details on completing a one-time KYC (Know Your Customer) process, change of details like address, phone number etc. and change of bank details, etc. For complaints redressal, either visit www.assetmanagement.hsbc.co.in or SEBI’s website www.scores.gov.in. Investors may refer to the section on ‘Investor Education’ on the website of Mutual Fund for the details on all ‘Investor Education’ on the website of Mutual Fund for the details on all ‘Investor Education and Awareness Initiatives’ undertaken by the AMC.

Disclaimer: This document has been prepared by HSBC Asset Management (India) Private Limited for information purposes only and should not be construed as i) an offer or recommendation to buy or sell securities referred to herein or any of the funds of HSBC Mutual Fund: or ii) an investment research or investment advice. Investors should seek personal and independent advice regarding the appropriateness of investing in any of the funds, securities, other investment or investment strategies that may have been discussed or referred herein and should understand that the views regarding future prospects may or may not be realized. This document is intended only for those who access it from within India and approved for distribution in Indian jurisdiction only. Distribution of this document to anyone (including investors, prospective investors or distributors) who are located outside India or foreign nationals residing in India, is strictly prohibited.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.