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June 23, 2011 at 10:52 AM
Boston mutual-fund behemoth Fidelity Investments announced Wednesday that it has launched the Fidelity Defined Maturity Funds, a series of four municipal income funds, each with a defined maturity date.
The company says the funds “seek to bridge the gap between individual bonds and bond funds, and are the first actively managed municipal bond defined-maturity funds in the market.”
According to the company, the funds are open-end and seek to incorporate attributes of individual bonds. They will invest primarily in investment-grade municipal bonds that are generally clustered around the funds’ defined end dates. They’ll seek as high a level of current income and, like municipal bonds, are exempt from federal income tax. The Defined Maturity Funds will close to new purchases approximately 12 months prior to their maturity date. Each fund then plans to liquidate and distribute its net assets to investors shortly after the maturity.
“When compared to a traditional bond fund, the price volatility of the Defined Maturity Funds is designed to decline as their underlying bonds approach their maturity,” Mark Sommer, the funds' co-manager, said in a statement. “However, unlike individual bonds, these funds do not return a pre-determined amount at the funds’ defined end dates.”
He added the funds are appropriate for income-seeking investors who are interested in combining the defined-maturity feature of individual bonds with features of bond funds, including diversification and professional management, which removes much of the legwork of individual bond investing. Investors could use the funds in three potential ways: as an income vehicle, an investment vehicle, or as a laddering opportunity.
