It is surprising that Indian mutual funds have not yet launched Target Date funds. It is a big money gatherer in the USA (remember Mutual funds are in the money gathering business not in the money managing business).

What is a Target Date Fund and how does it work?

Since we are in 2015 let me assume that the earliest retirement person is looking at 2045 to retire. So as a fund house I create a fund called “Target date 2045 fund”. This is meant to create a corpus for you by 2045 – and you need not bother too much about asset allocation etc. and exactly in 2045 you should have your corpus ready for retirement.

So as a fund manager I would go with say 90% in equity and 10% in 30 year G-sec (the duration risk is nil because I am going to hold it to maturity). Ideally I should be investing the 10% in zcb (zero coupon bonds) but it may not be available in India. As time goes on I will reduce say 1% every year from equity and buy zcb maturing in 2045.  The advantage for the fund manager is that he knows what he is supposed to do. For example he knows that interest rates are going to decline he can buy more longer maturity bonds and sell them when interest rates actually go down. Such strategies are very difficult for a regular income fund manager to do.

Strategically speaking each fund manager could take a different view even on the equity portfolio. Some could take a view that since they have a 30 year view they could invest in a high risk start up. Another fund could take a view that he would invest in say MSCI world index, Sensex, and the a part in one of the US indices. So each fund manager could have a different strategies. One fund could take the view that the debt portion will act as a margin to take FnO calls and thus improving the returns. One fund could get busy in the area of writing options based on a good portfolio that they are building.

The advantage for the client is he could start with say Rs. 5ooo per month (come on a 25 year old is not going to be able to invest more!!) and increase the contribution by Rs. 500 every year. HERE he need not worry about asset allocation as that worry is being handled by the fund manager.

This is good for the distributor also as the client remains focused on 2045 and not on the yearly returns. To give an example – my wife has a SIP in Templeton India Pension Plan and it is now about 15 years old and it has given her about 12% CAGR. I would have preferred a Hdfc Prudence kinda fund because she is still about 10 years away from retirement…


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  1. Very interesting article. Thanks for posting. There’s also scope for launching strategic indices as investor sophistication improves!
    Reliance MF recently launched an NV20-Index fund(an NSE index).

  2. @Vivekanand: IMHO, the dated funds would simplify the investment process for the common investors. This is due to the fact that he will have to keep on ignoring the noise or concepts like portfolio re-balancing. However, the strategic indices mutual funds or any such schemes are adding complexity to the already jargon-ed living of the common man. I think, in absence of the dated funds, he is better off with cap oriented funds or simply the balanced funds.
    Sorry, that was just my opinion and no offence meant.

  3. Franklin India Life Stage Fund Of Funds Come closest. I think you’d still need to move the money once in 10 years to move to the next appropriate bracket but that’s really no big deal ( seriously once in 10 years!!) agree that target date would be better but this is still better than nothing.

  4. Target Date funds are a horrible idea for investors from a fund selection POV. These shift the focus from the nature of underlying investments and lead to apple to oranges comparisons.

    PS: I like Templeton Funds but I hate Pension Plan- risky debt portfolio, high expense ratio, poor risk adjusted returns

  5. What if the fund manager invests the EQUITY part in some dumb stocks., Are we not allowed to review performance and withdraw (say after 5 years) if we are not satisfied????

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