Maturity

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DEFINITION of 'Maturity'

The period of time for which a financial instrument remains outstanding. Maturity refers to a finite time period at the end of which the financial instrument will cease to exist and the principal is repaid with interest. The term is most commonly used in the context of fixed income investments, such as bonds and deposits.

BREAKING DOWN 'Maturity'

Upon maturity of a fixed income investment such as a bond, the borrower has to pay back the full amount of the outstanding principal, plus any applicable interest to the lender. Non-payment upon maturity may constitute default, which can have very severe repercussions for the borrower's business and credit rating.

The maturity of an investment is a primary consideration for the investor, since it has to match his or her investment horizon. For example, a young couple who are saving for a down payment on a condo that they intend to purchase within a year would be ill-advised to invest in a five-year term deposit, especially one that carries penalties if cashed early. A money-market fund or a one-year term deposit may be a much better choice in this case.

The term maturity is seldom used with reference to derivative instruments such as options and warrants. For such instruments, the term expiry or expiration date is used instead to refer to the fact that they have a limited life and will cease to exist after a certain time period.

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