The tax googly from the finance bill has meant that debt mutual funds would lose their indexation benefit and all capital gains would be taxed at your slab from April 1. However, for existing investments and those made till March 31, the old rules of indexation and long-term classification after three years of holding are still available. Therefore, investors can consider target maturity funds with good yield to maturities to take advantage of the current high interest rates.

Though a short window to make important asset-allocation decisions is not the ideal way of going about things, desperate times call for quick measures.

Three funds to invest

Here are three target maturity funds that invest in a blend of g-secs, SDLs (State development loans) and PSU (public sector undertaking) bonds with AAA rating.

Kotak Nifty SDL April 2032 Top 12, Edelweiss Nifty PSU Bond Plus SDL April 2026 50:50 Index and Bandhan CRISIL IBX Gilt April 2028.

The selection of funds is such that maturities are spaced out over three, five and nine years, so that you can make allocations to goals at different points in time.

The current yield to maturity (YTM pre-expense ratio) of Kotak Nifty SDL April 2032 Top 12, Edelweiss Nifty PSU Bond Plus SDL April 2026 50:50 Index and Bandhan CRISIL IBX Gilt April 2028 are 7.82 per cent, 7.74 per cent and 7.54 per cent, respectively.

For perspective, the YTM of the 7.26 per cent GS 2032 is 7.34 per cent and that of 5.74 per cent GS 2026 is nearly 7.2 per cent.

Thus, the yields from these funds are nearly 30-50 basis points higher than equivalent government security yields.

Since the Kotak fund invests entirely in top SDLs and the Edelweiss scheme takes a blended approach with PSU bonds and SDLs, the Bandhan (earlier IDFC) fund has been chosen so that exposure is entirely to g-secs for diversification and also with the right maturity profile.

Staying put

There is almost no credit risk in any of these funds as the underlying securities are sovereign or have some form of sovereign backing.

Investors must stay put till the end of maturity to realise the indicated yields (less expense ratio) of the portfolios.

Selling any time sooner than the maturity date will affect the yields. The expense ratios for the direct plans of the three funds are: Kotak - 0.2 per cent, Edelweiss - 0.15 per cent and Bandhan - 0.16 per cent.

In any case, you will need to hold on for three years to get indexation benefits.