How are Target Maturity Funds different from FMPs?

How are Target Maturity Funds different from FMPs? zoom-icon

Debt mutual fund investors are faced with two primary risks, interest rate risk and credit risk. While long-duration G-Secs address credit risk well, they are prone to high-interest rate risk. On the other hand, short-duration funds or liquid funds offer better management of interest rate risk but suffer from credit quality issues. 

FMPs and Target Maturity funds have fixed maturities and hence are better placed to manage interest rate risk through a buy and hold strategy.  However, Target Maturity Funds score a few points above FMPs in certain respect. Apart from addressing interest rate risk, they are also better placed to handle credit risk as compared to FMPs since their portfolio consists of G-secs, State Development Loans and AAA-rated PSU bonds. 

FMPs are close-ended funds and even though they are

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