Target Maturity Mutual Funds

Target maturity funds are debt index funds with an end date. Every bond they hold must mature by then.

Debt means loans to governments, banks or companies, in the form of bonds and similar paper. An index is a list of securities picked by fixed rules, here bonds. An index fund must keep at least 95% of its total assets in its index's securities.

SEBI has no category with this name. It files these funds under index funds and ETFs. An ETF, or exchange traded fund, follows an index the same way, but its units trade on a stock exchange. A few funds on the list are funds of funds. Each puts at least 95% into one target maturity ETF and does not track an index itself.

SEBI's rule for these funds is short: no bond the fund holds may mature after the fund's end date. (SEBI's words: “At no point of time, the residual maturity of any security forming part of the portfolio shall be beyond the target maturity date”.)

The end date is in the fund's name, because the name must carry the index it tracks.

In official lists these funds appear as index funds (or, for a few, as funds of funds), not as a separate category.

The name tells you what the index holds.

• SDL, or state development loan: bonds issued by state governments.
• G-Sec or Gilt: central government bonds.
• PSU or CPSE: bonds from government-owned companies. CPSE stands for Central Public Sector Enterprise.
• A ratio such as 60:40: the split between the index's two parts, reset to that split at each review.
• AAA Financial Services or NBFC-HFC: bonds of top-rated lenders. That means finance companies, housing finance companies and, in some indices, banks.

A credit rating is a rating agency's opinion of how likely a borrower is to repay on time. AAA is the highest, meaning the highest degree of safety; AA is high; A is adequate. It is an opinion, not a promise, and it can change.

The index decides what the fund holds. SEBI requires every bond in such an index to have a stated maturity and a rating of investment grade, BBB- or higher on that scale. It also caps how much any one company can make up. The index is reviewed at least once every six months.

Why the list is long. SEBI normally allows a fund house one scheme per category. Index funds tracking different indices are an exception. SEBI lets a fund house run one index fund per index. So one fund house can offer several target maturity funds that end in different years.

On the end date, a target maturity index fund redeems everyone's units at that day's NAV and pays the money into your bank account. NAV is the price of one unit. You do not have to ask.

These terms are set by the scheme document, the fund's official offer document. It says how many days the payout takes, and the fund house may stop taking new money shortly before the date. What you get is the value of the fund's bonds on that day, not a fixed amount promised in advance.

The payout on the end date is taxed like any other sale of units. The gain is added to your income and taxed at your slab rate (for units bought from April 2023). Your slab rate is the income-tax rate on your band of total income. No tax is deducted from the payout for resident investors; you report the gain in your return.

Koshex suggests matching the fund's end date to when you need the money. Picture a flat's possession-stage payment due to the builder in 2029. A fund ending a little before that bill, with room for the payout days, lines the two up. Koshex helps you choose a fund that suits your goal and timeline.

Yes. If you sell before the end date, you get the value of the units on that day, which can be less than you paid. SEBI's investor website makes the same point about bonds sold before they mature.

Bond prices tend to fall when interest rates rise, and to rise when rates fall, as SEBI's investor website notes. The fund's value follows the prices of its bonds. How much it moves depends on how long those bonds run: SEBI scores a longer duration as a higher interest-rate risk. Interest-rate risk is the chance that a change in rates changes the value of the bonds a fund holds.

The riskometer is the risk label SEBI makes every fund show, on six levels from Low to Very High, checked every month. Most listed target maturity funds read Low to Moderate on 29 September 2026; the rest read Moderate or Low.

SEBI's riskometer scores a shorter remaining duration as less interest-rate risk, so a fund's level tends to fall as its end date nears. If a fund's level changes, it must tell its unitholders by email or SMS.

The difference is who picks the bonds, and whether there is an end date. A target maturity fund follows its index, and every holding matures by one date. Gilt and corporate bond funds are SEBI categories run by a manager, with an ongoing portfolio and no end date.

• A gilt fund keeps at least 80% in government securities, of any maturity. Those include state development loans as well as central government bonds. One type, the 10-year constant maturity gilt fund, must hold its portfolio's duration at 10 years.
• A corporate bond fund keeps at least 80% in company bonds rated AA+ and above.

On 29 September 2026, most listed gilt funds read Moderate, and so did most listed corporate bond funds.

Koshex suggests 5 years or more for a long gilt fund, and 10 years for the constant maturity type. For corporate bond funds we suggest 1 to 3 years or more. For a target maturity fund, we suggest staying until its end date. These horizons are our judgement, not SEBI rules.

These funds are taxed as debt funds. Under the Income-tax Act, 2025, a Specified Mutual Fund is one with more than 65% in debt and money market instruments. A target maturity index fund keeps at least 95% in its debt index, so it is one. A fund of funds that invests in such ETFs is taxed the same way.

Your holding period is how long you owned a unit before selling it. For these funds, the date you bought decides the rule:

• Units bought on or after 1 April 2023: short-term gain at your slab rate, however long you held them (section 76).
• Units bought before 1 April 2023: slab rate if held 24 months or less. After 24 months, the gain is long-term and taxed at 12.5% (section 197).

The ₹1,25,000 yearly exemption on long-term gains belongs to equity funds, not these.

Suppose you sell units in October 2026 for an assumed gain of ₹1,36,000. Assume total income under ₹50 lakh, so no surcharge, the extra charge on the tax above that level. Cess is an extra 4% charge on the tax.

• Units bought in June 2024, top slab 20%: tax ₹27,200, plus ₹1,088 cess, so ₹28,288.
• Units bought in June 2024, top slab 30%: ₹40,800 plus ₹1,632 cess, so ₹42,432.
• Units bought in March 2022, held over 24 months: 12.5% gives ₹17,000, plus ₹680 cess, so ₹17,680.

The 30% slab applies above ₹24,00,000 under the default regime, and above ₹10,00,000 under the old one.

No TDS, tax deducted before money reaches you, is taken when a resident redeems. IDCW is a payout from the fund's income or gains, which cuts its NAV by the amount paid. It is taxed at your slab rate. A fund house deducts 10% TDS on the whole IDCW once its payouts to you pass ₹10,000 in a tax year. That TDS counts towards your tax for the year.

For units bought from April 2023, a sale at a loss gives a short-term capital loss. You can set it against other capital gains that year. Or carry it forward for up to eight years, if you file your return on time. You cannot set it against your salary.

Start with the end date, set against the date you need the money.

• What the index holds: read it from the name, then check the scheme document.
• Potential Risk Class: a target maturity index fund's scheme document shows a PRC cell. That is SEBI's grid of the most interest-rate risk and credit risk the fund may take. Credit risk is the chance a borrower pays late or not at all. The fund must sit in the same cell as its index.
• Tracking difference: the yearly gap between the index's return and the fund's. For debt index funds and ETFs, SEBI caps it at 1.25%, averaged over a year. It is published monthly on the fund house's website and on AMFI's, the industry body.
• Expense ratio: the fund's yearly fee, shown as a percentage of your money and taken out of the fund's value. SEBI caps an index fund's base fee at 0.90% a year. For a fund of funds investing in index funds or ETFs, the 0.90% cap includes the underlying funds' costs.
• AUM (assets under management): the current total value of the money a fund manages. The listed funds hold ₹1,01,008 Cr between them.
• Exit load, a fee some funds charge if you sell within a set time after buying. SEBI does not set an exit load for these funds. Each fund sets its own in its scheme document; many index funds of this kind charge none. There is no lock-in, a period during which you cannot sell at all.

There are 87 listed target maturity funds, and the list changes as funds reach their end dates. Of them, 71 have a 3-year record. Only those are ranked on 3-year return and counted in the averages.

A SIP invests a fixed amount at regular intervals, usually monthly; a lumpsum puts in a larger amount at one time. Each SIP instalment buys units at that day's NAV, with its own holding period and cost.

Koshex is an AMFI-registered distributor (ARN-154632): a registered intermediary that helps you buy and manage funds. What you buy through us is the regular plan, the version of a fund bought through a distributor. We review your holdings over time and flag changes, such as a fund's category, risk or ranking shifting.