Fixed-income maturity

What is it? The maturity of a fixed-income security, such as a bond, is simply the date on which the investment ends or “matures.” For example, a 10-year bond ends at the 10-year mark, meaning any interest payments end and the amount of the principal is due to the investor.

How does it work? In the world of mutual funds, funds tend to be organized by types of maturity or some strategic combination of maturities. In Canada, a long-term bond or fixed-income fund must hold at least 90% of its holdings with an average maturity of greater than 9 years. Typically, these are bonds issued by the Government of Canada, the provinces or Crown corporations and agencies. Conversely, Canadian short-term bond or fixed-income funds focus on securities with an average duration of less than 3.5 years. In funds with broader mandates such as balanced or tactical asset allocation funds, the maturity dates of holdings may vary according to the fund’s mandate or the manager’s strategies.Why does it matter? Different kinds of bonds and bond funds will play different roles in a diversified mutual fund portfolio and come with different risk profiles. Generally speaking, longer-term bond funds have a higher risk profile because the longer a bond is held, the more it could be affected by changes in interest rates, inflation or market declines. Your reward is potentially higher returns than with shorter-term bond funds.