Medium to Long Duration funds invest in debt and money market instruments with a maturity ranging from 4 to 7 years.
4 to 7 years
15 Funds
₹42,869 Cr Total AUM
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Fund name | Fund size | Expense Ratio | 3Y Returns |
---|---|---|---|
UTI Bond Fund Direct Growth Medium to Long Duration Moderate Risk | ₹314 Cr | 1.24% | 8.5% |
Nippon India Income Fund Direct Growth Medium to Long Duration Moderate Risk | ₹394 Cr | 0.67% | 7.0% |
LIC MF Medium to Long Duration Bond Fund Direct Growth Medium to Long Duration Moderate Risk | ₹181 Cr | 0.21% | 6.8% |
ICICI Prudential Bond Fund Direct Growth Medium to Long Duration Moderate Risk | ₹3,084 Cr | 0.62% | 6.8% |
SBI Magnum Income Fund Direct Growth Medium to Long Duration Moderately High risk | ₹1,862 Cr | 0.78% | 6.7% |
Kotak Bond Fund Direct Growth Medium to Long Duration Moderate Risk | ₹2,083 Cr | 0.69% | 6.5% |
HDFC Income Fund Direct Growth Medium to Long Duration Moderate Risk | ₹862 Cr | 0.8% | 6.2% |
Aditya BSL Income Fund Direct Growth Medium to Long Duration Moderate Risk | ₹2,188 Cr | 0.74% | 6.1% |
Canara Robeco Income Fund Direct Growth Medium to Long Duration Moderate Risk | ₹120 Cr | 0.67% | 6.0% |
HSBC Medium to Long Duration Fund Direct Growth Medium to Long Duration Moderate Risk | ₹49 Cr | 0.67% | 5.6% |
Identify red flags in your mutual funds and how to fix them
Medium to long duration Funds are open-ended debt mutual fund schemes that invest debt and money market instruments with a Macaulay duration of the portfolio between 4-7 years. Macaulay duration is like an average wait time for all your money back from a bond, considering both interest payments and final repayment, and helps you understand how sensitive the bond's price might be to interest rate changes.
They are suitable for investors who have a longer investment horizon and are willing to tolerate potential fluctuations in bond prices. As of February 29, 2024, this fund category has assets under management (AUM) of Rs 110,528.85 crore with 12 schemes with the oldest being 29 years old, and the category ranked 15th in the list of open-ended debt funds according to the Association of Mutual Funds in India (AMFI).
Scheme Name | AUM (Cr.) |
ICICI Prudential Bond Fund | 2,973.52 |
Kotak Bond Fund | 1,834.30 |
Aditya Birla Sun Life Income Fund | 1,788.62 |
Source: AMFI website as of February 29, 2024
While you should identify your risk profile and plan your financial goals before investing in medium to long duration funds, here are some situations where they may fit in:
As of February 19, 2024, medium to long duration funds offer annual returns between 7.6% and 9%. This outpaces the 6.5-7% interest rates offered by large banks on comparable fixed deposits. While market fluctuations can impact returns, these mutual funds generally provide a better opportunity for growth than traditional bank fixed deposits.
Source: Valueresearch, SBI, HDFC Bank, ICICI Bank, BOB websites as of February 19, 2024
Note: While medium to long duration funds are good alternatives to bank savings accounts and fixed deposits, they are not insured like them. Up to Rs. 5 lakh per bank account are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
These funds may perform well in a falling interest-rate environment. When interest rates decline, the prices of existing bonds in the fund's portfolio may increase, resulting in capital gains.
Investors considering medium to long duration funds should have a moderate risk tolerance. While these funds offer potential for capital appreciation and income generation, they also carry interest rate risk and credit risk, which can lead to fluctuations in the fund's value.
Medium to long duration funds may be more suitable for investors with a longer investment horizon who can withstand short-term market fluctuations. These funds may require patience as fund managers navigate changing market conditions.
Investors looking to diversify their portfolios beyond equities may include medium to long duration funds to spread risk. Investors with a lower risk tolerance who are uncomfortable with the volatility associated with stocks may find them more in line with their risk preferences.
Short Term Capital Gains (STCG) Tax | Long Term Capital Gains (LTCG) Tax | |
Before 1st April 2023 | All gains registered within 24 months from the investments are taxed at your slab rate. | All gains registered after 24 months from investments are taxed at a 12.5% tax rate. |
On and after 1st April 2023 | Slab rate. | Slab rate |
These funds pay out dividends when you invest in their IDCW (Income Distribution Cum Withdrawal) option. Dividends are taxed at your marginal income tax rate, and TDS (Tax Deducted at Source) at 10% applies to dividends received more than Rs 5,000 per AMC per financial year.
These funds are managed by experienced professionals who use market analysis, interest rate tracking, and credit risk assessment to maximize returns. For example, ICICI Prudential Bond Fund is managed by Manish Banthia who has 13 years of experience in fund management (as of April 29, 2024).
Compared to equity mutual funds, medium to long duration funds tend to have lower volatility. They are generally less sensitive to market fluctuations, making them suitable for investors with a lower risk tolerance.
Medium to long duration funds invest in a diversified portfolio of bonds issued by different companies and industries. This diversification helps spread risk and reduces the impact of poor performance from any single issuer. For example, Aditya Birla Sun Life Income Fund has invested in more than 50 corporate and government bonds to diversify its investments (as of April 29, 2024).
Medium to long duration funds make it easier for individual investors to access the bond market, which may require a larger investment if buying individual bonds, whereas users can start investing in these funds with as low as Rs 100. This accessibility is beneficial for retail investors.
Beyond the regular income, investors may also experience capital appreciation if the value of the underlying bonds increases due to factors like declining interest rates or improving the creditworthiness of issuers.
Medium to long duration funds are sensitive to changes in interest rates. When interest rates rise, the prices of existing bonds tend to fall. Conversely, when rates decline, bond prices may rise. Investors in medium to long duration funds may face capital losses if interest rates move unfavorably.
Medium to long duration funds invest in a mix of debt securities, and their performance is influenced by market conditions. Economic factors, credit risk, and overall market volatility can impact the fund's returns.
Medium to long duration funds may invest in bonds with varying credit qualities. A downgrade in the credit rating of the bonds in the portfolio could lead to losses.
Inflation can erode the purchasing power of fixed-income investments. If inflation rises unexpectedly, the real returns from medium to long duration funds may be diminished.
Some medium to long duration funds may invest in less liquid or harder-to-trade securities. In times of market stress, selling such securities may be challenging, potentially impacting the fund's ability to meet redemption requests.
Understanding the dynamics of medium to long duration funds, including their duration, requires a certain level of financial literacy. Investors who are not familiar with these complexities may find it challenging to assess and manage their investments effectively.
Medium to Long Duration funds offer Indian investors a way to add fixed-income investments to their portfolios, with the potential for greater returns than short-term debt funds or bank fixed deposits. However, they're not without risk, and are best suited for those with a moderate risk tolerance and a moderately long investment time frame. Before investing, weigh the potential returns alongside your understanding of interest rate sensitivity and credit risk to ensure these funds fit your financial goals.
By Duration
By Credit Quality
By Investment Style
Funds having a maturity of 3 to 4 years
Mirror an index of long-term debt instruments.
Funds having a maturity of 6 to 12 months
Funds having a maturity of 5 years or more
Funds having a maturity of 3 to 6 months.
Low risk, high liquidity with a maturity of 1 Day
Funds having a maturity of 1 week to 3 months
Funds having a maturity of 1 year to 3 years.
Hybrid funds are a combination of equity and debt investments. The blend of these asset classes varies based on the fund's investment goals.
Equity funds mainly invest in stocks of different companies, making investors partial owners of those companies when they invest in such funds.