Motilal Oswal Asset Management Company (MOAMC) launched its first target maturity fund, the Motilal Oswal Nifty G-sec May 2029 Index fund, an open-ended target maturity scheme replicating the Nifty G-sec May 2029 Index.
Like TMFs that invest in government securities, PSU debt, and SDLs (State Development Loans), the Nifty G-sec May 2029 Index has three G-secs issued by the central government. The index has the weight distributed equally among the three securities.
As with fixed deposits, target maturity funds have a set maturity date, set in accordance with the funds they track. Here, the Nifty G-sec May 2029 index will mature on May 4, 2029, and indicates an annual yield of 7.53 per cent.
The Motilal Oswal Nifty G-sec May 2029 Index fund re-opens on March 10, 2023, with a minimum application amount of Rs 500. The new fund offer (NFO) was on March 2. During the NFO, it was Rs 10 per unit.
These funds are less prone to interest rate risk than standard bond funds since they invest primarily in debt securities until maturity. Furthermore, Motilal Oswal Asset Management Company emphasizes that the yield has peaked due to the increase in the repo rate, and investors should take advantage of this opportunity.
Pratik Oswal, Head of Passive Funds, Motilal Oswal Asset Management Company Ltd, said, “Following the rapid hike in policy rates over last year, the inflation has broadly moved in RBI’s comfort zone, thus reducing pressure for a further hike in interest rates. This presents an attractive opportunity for investors to invest at these levels, as the yields seem to have peaked. Investors wanting to lock in at these levels can turn to target maturity funds, as these funds provide high visibility of returns if held till maturity”.
As TMFs hold bonds to maturity, devaluation is less likely in a rising interest rate environment unless you sell before maturity.
The company considers the investment risk to be “moderate,” matching the risk of the NSE index consisting of G-secs. Since these funds are open-ended, investors can withdraw their investments anytime. Despite being liquid, target maturity funds should be held until maturity, enabling you to achieve the indicated yield. Early exit makes one prone to interest rate risks.
If units are sold after three years from the date of investment, gains are taxed at a rate of 20 per cent after inflation is considered. If units are sold before three years, profits are taxed at the income tax slab rate. Dividends are also subject to income tax at the slab rate.
Says Navin Agarwal, MD & CEO, Motilal Oswal Asset Management Company Ltd: “Target maturity fund (TMF) segment has seen phenomenal growth in the past couple of years. From being a non-existent couple of years back to having more than 70 funds managing Rs 1.5 lakh crore, this segment has come a long way. Several factors have contributed to the success of these funds, particularly the return visibility.”
