Not even 1% of target maturity funds' assets is from retail investors

While target maturity funds are the flavor of season, retail investors have given it a miss. 

An analysis done by Cafemutual of top eight target maturity funds based on their assets reveals that non- even 1% retail investors invest in target maturity funds. 

These target maturity funds collectively manage assets of over Rs.62,400 crore as on January 2022. Of these, retail investors account for Rs.140 crore, which is close to 0.22% of the total assets in these funds. 

TMFs are open-ended passive funds that follow an underlying index with a specific maturity date. Since these funds have maturity similar to their underlying index on maturity, investors receive principal amount along with interest income.

Majority of flows in target maturity funds have come from corporates, banks and HNIs, shows our analysis. 

Experts attribute this to lack of awareness about TMFs among investors. Hemen Bhatia, Head ETF, Nippon Life India MF said, “I believe a lot of investor education is required for promoting fixed income mutual fund products. Limited financial literacy along with low understanding of fixed income mutual fund products by investors is clearly visible. This is clearly evident by the fact that despite being one of the simplest fixed income mutual fund product categories and a superior product, Target Maturity Funds has an AUM of Rs.1.47 lakh crore with limited retail participation as against Bank FD size of Rs.170 lakh crore. Even though TMFs give relatively efficient post tax returns along with similar safety, bank fixed deposits remain popular due to its simplicity. I believe financial education will go a long way in popularizing mutual fund fixed income products like target maturity funds. Additionally, target maturity funds as a category has been in existence only since few years as against long years of existence in case of bank fixed deposits, hence, I believe with rising popularity of target maturity funds in next few years amongst the masses, we may see increased retail participation.”

In an interview, Puneet Pal, Head – Fixed Income, PGIM India Mutual Fund said, “In the recent past, the popularity of debt funds like liquid and short-term funds is increasing among retail investors. Intermediaries are also recommending these funds to help clients save for building an emergency corpus and meeting short term goals. We believe a lot more needs to be done to educate investors about the importance of debt funds in investors’ overall portfolio. This will help the industry in attracting more retail money into TMFs and other debt funds.”

Let us look at this interesting table to know more: 

Note: We have taken TMFs based on their AUM and having track record of atleast one year.