In Debt Funds: Duration strategy or Predictable Returns?

In Debt Funds: Duration strategy or Predictable Returns?

by Tanushree Jaiswal Last Updated: Sep 25, 2023 - 12:30 pm 261 Views
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Target maturity, constant duration medium, and constant duration medium-to-long category funds may still be popular in the present macroeconomic situation given that rates are predicted to be range-bound or decline. 
Investors who want to park their money in shorter duration categories (such as liquid funds, money market funds, low duration funds, ultra-short duration funds, or short duration funds), who have an understanding of the short-term interest rate cycle, and who want to increase their income should typically invest in constant duration funds.

The choice between duration strategy and predictable returns in debt mutual funds depends on your financial goals, risk tolerance, and investment horizon. 

Let's break down the two options:

Duration Strategy:

  1. Duration refers to the sensitivity of a bond or a bond fund's price to changes in interest rates. Longer duration bonds or funds tend to be more sensitive to interest rate changes.
  2. If you opt for a duration strategy in debt mutual funds, you are essentially betting on interest rate movements. When interest rates fall, longer-duration bonds or funds tend to see capital gains, resulting in higher returns. Conversely, when interest rates rise, they may lead to capital losses.
  3. Duration strategies can provide potentially higher returns in a falling interest rate environment. However, they come with higher volatility and risk, especially if interest rates rise unexpectedly.

Predictable Returns:

  1. Predictable returns typically involve investing in debt mutual funds that have a more conservative and stable approach. These funds often prioritize safety of capital and generate income through interest payments.
  2. Funds that aim for predictable returns tend to have shorter duration portfolios, invest in higher-quality bonds, and may include government securities and corporate bonds with good credit ratings.
  3. This strategy is suitable for investors who prioritize capital preservation and a steady stream of income. It is generally considered less risky than a duration strategy.

When deciding between these strategies, we must consider the following factors:

  • Investment Goals: Are you looking for capital appreciation, regular income, or a combination of both? Your goals should guide your strategy choice.
  • Risk Tolerance: Are you comfortable with the potential volatility associated with longer-duration strategies, or do you prefer lower risk and stable returns?
  • Investment Horizon: How long do you plan to hold your investment? Longer investment horizons may allow you to ride out interest rate fluctuations in a duration strategy.
  • Market Conditions: Consider the prevailing interest rate environment. In a falling rate scenario, longer-duration strategies may be more attractive, while predictable returns may be favoured in a rising rate environment.
  • Diversification: It's often advisable to have a diversified portfolio that includes a mix of investment strategies, including both duration and predictable return strategies, to spread risk.
  • Professional Guidance: If you're unsure which strategy suits your needs, consult a financial advisor who can help tailor your investment approach to your specific circumstances.


Ultimately, there is no one-size-fits-all answer, and the choice between duration strategy and predictable returns should align with your individual financial situation and objectives. It's important to review your investment strategy periodically and make adjustments as needed to stay on track with your goals.

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About the Author

Tanushree is a seasoned professional with 6 years of experience in the Fintech and Edtech industry.


Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.
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