A Win-Win Solution - A Passive, Hold to Maturity, fully G-Sec Product

Although retail participation in mutual funds, has grown by leaps and bounds in the last two decades, it is predominantly equity schemes that investors have favoured. As per AMFI data as of Jan-23, individual mutual fund investors have 80% of their total mutual fund allocation towards equity schemes and only 14% of the allocation is towards debt-oriented schemes.

- Ajit Menon

Hitherto, competition from traditional, guaranteed fixed income products have meant that Indian investors were not really worried about the accrual interest income bit in their portfolios. On the other hand, the potential to earn alpha in a debt asset class through active management – whether through exposure towards relatively lower credit ratings or through active interest rate management – was something a retail investor didn’t understand due to its seeming complexity. This has meant that they haven’t participated in this particular asset class in any meaningful manner. However, awareness around this is slowly changing for two reasons. Firstly, investors are learning to evaluate their traditional debt investments through the lens of inflation-adjusted returns. Secondly, they are considering post-tax returns. On both these counts, traditional products may not deliver. However, investors still take comfort from the visibility of future returns that these traditional investments offer. In recent years, an interesting development in the form of passive debt mutual fund, popularly known as Target Maturity Fund (TMF), looks to bridge this gap and perhaps create a win-win situation for all stakeholders. Till last