Medium Duration Fund: Invest for Steady Debt Returns

What is a Medium Duration Fund?

A Medium Duration Fund is a debt mutual fund that invests in short-term debt instruments. The Macaulay duration of the fund ranges between 3 and 4 years.

Advantages of Medium Duration Funds

Good returns

You can earn good returns on investments which can be higher than fixed deposits if you stay invested.

Medium-term investment

If you want to invest for 3 years or more for any medium-term financial goal, these funds are a suitable choice.

Diversified portfolio

You get an actively managed, diversified portfolio that invests in high-quality bonds and debt instruments.

Tax-Efficient Long-Term Gains

Offer potentially lower tax on gains if held over three years (after indexation).

Medium Duration Funds Returns Calculator

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Understanding Medium Duration Funds

Table of Contents

What are Medium Duration Funds?What are the features of medium duration mutual funds?Things to keep in mind when investing in Medium Duration Funds What are the types of risks that Medium Duration Funds face?What is the tax implication of Medium Duration Funds?What are the payout options?

What are Medium Duration Funds?

A type of open-ended debt mutual fund, Medium Duration Funds invest in debt securities in such a manner that the Macaulay portfolio duration lies between 3 and 4 years, making it suitable for medium-term investors.

What are the features of medium duration mutual funds?

Offers stable returns on investment
Low volatility risk since the fund primarily invests in debt and money market securities
There’s no capping on the maximum investment amount
Returns from these funds can go up to 10% p.a.
You can get better returns compared to fixed deposits while minimising investment risks

Things to keep in mind when investing in Medium Duration Funds

These funds face some extent of credit risk as they invest in lesser-rated debt securities

Check the expense ratio of such schemes. A high ratio eats into the fund’s returns and should be avoided

Compare Medium Duration Funds on their returns. A fund with the highest return is better

These funds face interest rate risks since they invest in long-term debt securities, too, which might fall in value if interest rates are cut.

What are the types of risks that Medium Duration Funds face?

Credit risk

Risk of default on the debt instrument
Interest rate risk

Risk of rising interest rates, which reduces the value of debt instruments
Inflation risk

Risk of inflation reducing the returns from the debt fund
Liquidity risk

Risk of not being able to trade in debt instruments

What is the tax implication of Medium Duration Funds?

Returns earned are taxed at your income tax slab rates
Dividends earned, if any, are taxed at your income tax slab rate

What are the payout options?

Dividend option

Earn dividends on your investment at regular intervals
Growth option

Accumulate the returns over the investment tenure and get a lump sum amount on redemption

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FAQs On Medium Duration Funds

Medium Duration Funds invest in debt securities and money market instruments.

Medium Duration Funds are best for

Investors who want to avoid equity risks
Investors looking for better returns than bank deposits
Investors with a time horizon of less than 5 years

The average rate of return is 5-7%.

Yes, new investors with an investment horizon/financial goals spanning around 3-4 years can benefit well from Medium Duration Funds.

You should stay invested in a Medium Duration Fund for 3+ years.