Target Maturity Funds Offer Ample Liquidity

The fixed-income market currently has little room for flexibility, prompting traditional investors to look for alternatives within the debt space. Consequently, many of them have turned to target maturity funds (TMF) in the hope that these schemes can serve as a buffer against risks. The TMF genre, which helps investors align their portfolios with maturity dates, is passively managed in keeping with an index. In each case, the index’s constituents have maturities matched with the fund’s maturity, a feature that brings these products close to fixed maturity plans (FMPs). FMPs, however, are different because of their closed-end nature. TMFs are, in contrast, open-end and so, investors can enjoy ample liquidity. The idea draws strength from the fact that the investments in TMFs (in this case, bonds and gilts) are held to maturity. The duration, therefore, reduces with time;...