NFO – SBI and Axis Target Maturity Funds

BL Research Office

Target Maturity Funds (TMFs) are fixed-maturity debt funds – which passively invest in bonds of a particular index holding them to maturity – thus providing some predictability of returns. Interest earned on these bonds is reinvested in similar bonds held to maturity. However, the fund can sell its bond holdings to meet repayments, if necessary. All existing TMFs track indices composed of AAA-rated corporate bonds, g-sec (central government bonds), SDL (state development loans) or a combination of these, which in fact high quality credit funds. SDLs are debt securities issued by state governments and carry an implied sovereign guarantee.

What is on offer?

SBI MF has launched its CPSE Bond Plus SDL Sep 2026 50:50 Index Fund, a target maturity fund (TMF). The new fund offering is open until January 17, 2022. The SBI CPSE Bond Plus SDL Sep 2026 50:50 Index Fund will follow the Nifty CPSE Bond Plus SDL Sep 2026 50:50 Index, which is an equal blend of AAA rated bonds issued by public entities and SDLs, all maturing between September 2025 and 2026. Each of the AAA rated bond issuers and selected state governments (SDL issuers) have been assigned an equal weight within their 50% share in the index. the well-diversified portfolio.

Today, the program offers a yield to maturity (YTM) of approximately 6.05%. That is, if you invest in the program today and stay put until it expires in September 2026, your return will be 6.05% less the expense ratio. If you invest later, the YTM at that point will show your yield to maturity. If you exit the program before it expires, your return will be different from that shown by the YTM, depending on how interest rates have changed since you invested. SBI MF’s TMF expense ratio will be known after the NFO closes. Other TMFs with similar portfolios and YTMs include Axis AAA Bond Plus SDL – 2026 ETF, Aditya Birla Sun Life Nifty SDL Plus PSU Bond Sep 2026 and Edelweiss NIFTY PSU Bond Plus SDL Index Fund – 2026 have expense ratios from 0.13 to 0.16 percent.

Axis MF also launched its CPSE Plus SDL 2025 70:30 Debt Index Fund, a target maturity fund (TMF) on January 10. The NFO (new fund offering) will remain open until January 20, 2022.

The program will follow the CRISIL IBX 70:30 CPSE Plus SDL – April 2025 and expire on April 30, 2025 – i.e. in approximately 3 years. If you stay invested until maturity, your indicative yield will be 5.75-5.95% YTM, depending on the yields in effect at the time the cash is deployed, less the expense ratio. The CRISIL IBX 70:30 CPSE Plus SDL – April 2025 Index is a 70:30 mix of AAA rated CPSE bonds and SDL (government development loans) maturing six months from April 30, 2025. The selected CPSE and SDL bonds will be assigned 70 percent and 30 percent weight, respectively, at the time of inception.

Axis MF’s latest TMF is similar in composition to its previous launch, Axis AAA Bond Plus SDL ETF – 2026 which matures in 2026 and has a 50:50 exposure to AAA rated corporate bonds and SDLs. The diet has a YTM of 6.12 percent.

To invest or not?

TMFs are ideal for investors who want some predictability of returns and have an investment objective that matches the maturity of the fund, and these funds can be particularly attractive (compared to, for example, term deposits) for the highest tax brackets. If you redeem your investment in a TMF, which is a loan fund, after three years your return (capital gains) is taxed at 20 percent with an indexation benefit. Interest income on term deposits, on the other hand, is taxed at the rate of the income tax slab.

With interest rates expected to gradually rise, there is a possibility of a capital loss (lower price of existing bonds in the fund’s portfolio) affecting your returns in the event of a premature exit. So be prepared to stay invested until maturity. Additionally, as the rate cycle accelerates, other higher yielding investment options, including TMFs with better YTMs, may emerge. Thus, do not invest a substantial part of your investable surplus in products of longer maturity, TMF or otherwise, and keep a part that can be easily liquidated to be reinvested at better rates.

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