It is quite surprising as to why India does not have Target Date Funds. Of course it is a great opportunity for the Financial Planner to use ‘Family Solutions’ kind of a plan of Franklin Templeton to create ‘Target Date solutions’ and plug in the loophole.

What are Target Date funds?

If a person wants a particular amount of money say 20 years hence – say 2034 he goes to a TDF(2034) and invests in that fund. It has a fund manager with a clear mandate about the asset allocation, reallocation, quality of assets, etc. Thus in 2014 it might start out as a fund with about 90% equities and 10% in long term debt – say 20 year G sec or 20 year corporate bond (not that it is easy to find such an instrument, but this is an example!).

This need not be a close ended fund, but clearly the maturity is in 2034 and has to have very huge withdrawal penalties. After about 10 years it could be made into a close ended fund – and listed. Initially it should start off as an ETF – so that in case somebody wants to withdraw they can sell it off on the stock exchange. This will allow the fund manager to concentrate on FULLY INVESTING the money got and need not worry about holding any cash.

What is the advantage of such Target date funds?

Well the fund manager can do the asset allocation according to the remaining time duration of the fund.

He can hold bonds to maturity – and avoid the trading losses. He can keep buying funds with 2034 maturity KNOWING that he needs the funds on the MATURITY DATE ONLY.

He can plan reinvesting the DIVIDENDS – assuming that the accumulation is ‘Growth’ and ‘Reinvestment’ only and does not include payouts.

The fund manager can invest in bonds like infrastructure bonds, prefernce shares with assured return and maturity before the due date, and can generally take a Target date exposure.

For the investor (if i were turning say 75 in 2034) I could invest in target date funds of 2034, 2036, 2040 RIGHT NOW and use these funds as ladders.

The common investor talks about rebalancing, but never finds time to do it in real life. After that it is only LUCK.

Surprised why Indian fund managers are not creating such products? Please do not be. They are making so much money that they NEED NOT BE INNOVATIVE. And I have no clue how our regulator will related to a product like this….

  1. GREAT INPUT SUBRA.A lot of people from BFSI and I am sure even Fund Mangers Read our Blog.Idea Germinated already….Till that time Asset Allocation which is Tilted Towards Quality Equity MF in early 20s and 30 s with as less as possible EMI ,Shifting towards a combination of Equity MF and PPF in early 40s or Balance Funds and then post 60…Swp of say 6% of created corpous each year along with SCS of 15 lacs and POMIS may be the option.Thank you for The Good Input subra

  2. This may not be TDF but something similar – ICICI Prudential has been launching Value Fund Series. It’s a 3-year close ended scheme, which would invest in focused 20-30 high conviction stocks by following the value investing philosophy.

    Does this meet the TDF criteria?

    On a separate note, would appreciate help from the community on a suggestion for myself – my asset allocation is 8% in equity and I wish to bring it up to 50%. (a) How should I go about increasing my asset allocation in equity and bring it upto 50% (lumpsum or gradual (SIP) (b) How is the option of choosing the above Value Fund Series scheme?

    Thanks in advance for help.

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