Target maturity debt funds - all you need to know

The Reserve Bank of India (RBI) has raised repo rates by 50 basis points this week amid rising concerns over surging inflation, global headwinds, and a slump in the rupee to its record lows.

In this episode of ‘Smart Money’ the focus is on how to protect our portfolio amidst a rising interest rate environment, what are the different tools you can use? In a conversation with CNBC-TV18, Radhika Gupta, managing director, and chief executive officer at Edelweiss AMC talks about target maturity debt funds.

She said it's a good time to look at debt funds as a category, "If you are looking to lock in high rates of interest, for a considerable period, whether it's 5 years, 10 years, etc. then you want to do it when interest rates are high, and why not now."

On target maturity debt funds Gupta said, "A target maturity fund has the features of a regular bond in a mutual fund format. When you buy a bond of any issuer or a G-sec, you buy it and you hold it till maturity. If you buy it today, if I buy a 10-Year bond, if I hold it till maturity, I will get a certain rate of interest. A target maturity fund tries to replicate that format."

She added, "The idea is that you buy bonds of a certain maturity, which is the target maturity, that could be 2025, that could be 2030. You buy it and you hold it till maturity. So it has the features of the bond with the diversification of a mutual fund and it is an open-ended debt fund format."