Target maturity funds are better than FMPs for locking in returns

They are more transparent and control both interest-rate and credit risk

A number of asset management companies (AMCs), such as HDFC, Kotak, Tata, Axis, HSBC and Union have filed their offer documents with the Securities and Exchange Board of India (Sebi) for launching target maturity funds (TMFs) and fixed maturity plans (FMPs). Investors, who wish to lock into prevailing returns by investing for a fixed period, will have to choose between the two categories.

The similarities

Defined tenure: Both TMFs and FMPs have defined tenures. “Both have a start and end date. By holding them till maturity, investors can eliminate the mark-to-market impact of rising interest rates,” says Munish Randev,