Low Duration Mutual Funds

Q: What is the Macaulay duration for Low Duration Funds?

Low duration funds maintain a Macaulay duration between 6 to 12 months, keeping them less sensitive to interest rate changes.

Q: Can I withdraw from a Low Duration Fund anytime?

Yes, most funds allow redemption anytime, but some may levy a nominal exit load if withdrawn within a few months.

Q: What returns can I expect from Low Duration Funds?

Low-duration funds generally aim to deliver moderate returns, which can vary based on market conditions, interest rate movements, and the fund’s credit exposure.

Q: Is SIP suitable for Low Duration Mutual Funds?

SIPs are possible, but lump sum investments are generally more common for short-term goals in Low Duration Funds.

Q: Are Low Duration Funds better than FDs?

Low-duration funds may suit investors seeking higher returns and better liquidity than FDs, especially without lock-in periods. However, suitability depends on one’s risk appetite, investment horizon, and need for quick access to funds.

Q: Do Low Duration Mutual Funds have a lock-in period?

No, they are open-ended and can be redeemed anytime, although some funds may charge an exit load for very early withdrawals.

Q: Do Low Duration Funds protect against rising interest rates?

Yes, due to their short maturity profile, their NAVs are generally less affected by rising rates compared to long-duration funds.

Q: How do you assess the performance of Low Duration Funds?

Performance can be assessed by looking at historical returns, consistency over different market cycles, portfolio quality, credit risk exposure, and the fund’s ability to manage interest rate changes effectively.

Q: How long should I stay invested in Low Duration Funds?

These funds are best suited for short-term goals. Ideally, investors should have a minimum investment horizon of 3 to 12 months to benefit from their return potential with manageable risk.

Q: When should I invest in a Low Duration Mutual Fund?

Low duration funds are suitable when you have surplus funds that you want to park for a few months to a year. They can be useful during periods of interest rate uncertainty or as a step-up from liquid funds.

Low Duration Funds are a category of debt mutual funds that invest in fixed-income securities with relatively short maturities. As per SEBI guidelines, these funds maintain a portfolio duration between 6 and 12 months. Their short duration makes them less sensitive to interest rate fluctuations than long-term debt funds, offering a balanced mix of moderate returns and relatively low risk. Low-duration mutual funds are suitable for investors looking to park money for a short period—typically more than 3 months—while aiming for better returns than traditional savings accounts or fixed deposits.

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List of Low Duration Mutual Funds

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Search Result - 24 Mutual Funds

Fund Name	Fund Size (Cr.)	3Y Returns	5Y Returns

Fund Name	1Y Returns	Rating	Fund Size (Cr.)

What is a Low Duration Mutual Fund?

A Low Duration Fund meaning is a category of debt mutual fund that primarily invests in instruments with a short maturity profile. As per SEBI classification, these funds maintain a Macaulay duration between 6 to 12 months.

The aim of this short-term mutual fund duration with low duration is to offer a balance between return and risk.

Key Features of Low Duration Mutual Funds:

1. Investment Type: Primarily invest in high-quality debt and money market securities.
2. Duration: Maintain an average portfolio maturity of 6 to 12 months.
3. Instrument Mix: Includes short-term corporate bonds, certificates of deposit (CDs), commercial papers (CPs), and Treasury Bills.

Low duration funds are structured to offer better returns than liquid funds while managing volatility better than longer-duration debt funds. Their low sensitivity to interest rate changes makes them relatively stable over short time frames.

1. Risk Profile: Low to moderate, suitable for cautious investors.
2. Ideal For: Investors looking to park surplus funds for 6 months to 1 year with relatively low risk.

Major Advantages of a Low Duration Fund

1. Better Returns than Savings Instruments: These funds generally offer higher yields than savings accounts or short-term fixed deposits.
2. Limited Interest Rate Risk: With shorter maturity instruments, these funds are less affected by rate hikes or cuts.
3. Good for Parking Idle Funds: These are ideal for temporarily deploying surplus cash without locking in funds or compromising liquidity.
4. Quick Liquidity: Being open-ended mutual funds, investors can redeem units anytime, typically with low or no exit load after a short holding period.
5. Why is Interest Rate Risk Lower: Because the average maturity is short, the fund’s NAV doesn’t fluctuate much with changes in interest rates. This makes them a safer bet in a rising rate scenario or in an uncertain macroeconomic environment.

How do Low Duration Mutual Funds Work?

Low duration mutual funds operate by investing in a portfolio of debt instruments that mature in the short term—typically within a year. The goal is to optimise returns by balancing interest income with relatively low price volatility.

Where Do They Invest?

Low duration funds allocate capital to a mix of:

1. Commercial papers (CPs)
2. Certificates of deposit (CDs)
3. Treasury bills
4. Short-term corporate bonds

The portfolio is crafted to minimise credit and interest rate risks while delivering steady returns over a short investment horizon.

How Do They Generate Returns?

When you invest in Low Duration Fund, returns come from two main sources:

1. Interest Income: The regular coupon or interest paid by the underlying debt instruments.
2. Capital Gains: Marginal price appreciation if interest rates fall, though this is limited due to the short duration.

Who Manages the Strategy?

Expert fund managers maintain a balance between credit quality and yield by actively managing the portfolio based on short-term liquidity conditions, interest rate outlook, and economic data.

Who Should Invest in Low Duration Funds?

1. Short-Term Financial Planners: Investors with goals within 6 to 12 months—like a vacation, EMI buffer, or emergency fund—can benefit from these funds.
2. Cash Management Seekers: Those looking for temporary parking for idle funds can earn better returns without locking the money in an FD.
3. Risk-Averse Investors: With minimal NAV fluctuations, these funds are appropriate for investors who prioritise capital preservation over high returns.
4. First-Time Mutual Fund Investors: Low duration funds are a good entry point into mutual funds for new investors with short-term goals and conservative risk profiles.

How to Invest in Low Duration Funds?

Step 1: Choose a Reliable Platform
Sign up on a trusted investment platform like 5paisa. It's quick, secure, and fully online.

Step 2: Complete Your KYC
Ensure you’ve completed KYC verification with PAN, Aadhaar, and bank account details.

Step 3: Research Funds
Use the mutual fund screener to compare various Low Duration Funds based on returns, expense ratios, credit ratings, and fund manager track record.

Step 4: Select Investment Mode
Choose between SIP (Systematic Investment Plan) for disciplined investing or a lump sum if you’re parking a specific amount.

Step 5: Invest and Track
Start investing and monitor your portfolio via the app. Redeem anytime as per your financial needs.

Factors to Consider Before Investing

1. Interest Rate Outlook: While rate fluctuations don’t impact these funds heavily, falling rates can slightly boost returns.
2. Credit Quality: Check the credit rating of underlying instruments. Higher-quality papers reduce the risk of default.
3. Fund Expenses: Look for funds with a low expense ratio, as it directly affects net returns in a low-yield environment.
4. Exit Load & Liquidity: Some funds impose a small exit load if redeemed within a few months. Always read the scheme information document.

How Are Low Duration Funds Taxed?

Taxation of Low Duration Funds falls under debt fund rules. As per the latest tax regulations, all capital gains, regardless of holding period, are taxed as per the investor’s income tax slab. Below is a detailed breakdown of how Low Duration Funds are taxed:

Investment Date	Holding Period	Tax Treatment	Tax Rate
Before April 1, 2023	≥ 24 months	LTCG	12.5% (no indexation)
Before April 1, 2023	< 24 months	STCG	As per income tax slab
On/After April 1, 2023	Any duration	STCG	As per income tax slab

If you're in a higher tax bracket, consider post-tax returns while evaluating these funds. It’s advisable to consult a tax professional before investing.

Risks Involved When Investing in Low Duration Funds

1. Credit Risk: One of the key risks in low duration funds is exposure to low-rated corporate papers, where a default by the issuer can negatively impact overall fund returns.
2. Liquidity Risk: During periods of market stress, selling underlying instruments could be challenging, though this is rare in high-quality portfolios.
3. Reinvestment Risk: When securities mature, reinvesting at lower rates can reduce overall returns.
4. Minimal but Present Interest Rate Risk: While much lower than long-term funds, short-term interest rate volatility can still marginally impact fund NAVs.

Popular Low Duration Mutual Funds

Fund Name
Min Investment Amt
AUM
3Y Returns

HSBC Low Duration Fund - Direct Growth

₹ 1000

₹ 9740

8.09%

Min SIP Investment Amt

₹ 1000

AUM (Cr.)

₹ 974

3Y Return

8.09%

ICICI Pru Savings Fund - Direct Growth

₹ 100

₹ 30,1630

7.84%

Min SIP Investment Amt

₹ 100

AUM (Cr.)

₹ 30,163

3Y Return

7.84%

HDFC Low Duration Fund - Direct Growth

₹ 100

₹ 24,6470

7.76%

Min SIP Investment Amt

₹ 100

AUM (Cr.)

₹ 24,647

3Y Return

7.76%

Kotak Low Duration Fund - Direct Growth

₹ 100

₹ 15,2830

7.75%

Min SIP Investment Amt

₹ 100

AUM (Cr.)

₹ 15,283

3Y Return

7.75%

Aditya Birla SL Low Duration Fund-Dir Growth

₹ 100

₹ 13,5650

7.67%

Min SIP Investment Amt

₹ 100

AUM (Cr.)

₹ 13,565

3Y Return

7.67%

AXIS Treasury Advantage Fund - Direct Growth

₹ 100

₹ 5,9790

7.65%

Min SIP Investment Amt

₹ 100

AUM (Cr.)

₹ 5,979

3Y Return

7.65%

Mahindra Manulife Low Duration Fund - Dir Growth

₹ 500

₹ 5990

7.64%

Min SIP Investment Amt

₹ 500

AUM (Cr.)

₹ 599

3Y Return

7.64%

Nippon India Low Duration Fund - Direct Growth

₹ 100

₹ 10,4060

7.64%

Min SIP Investment Amt

₹ 100

AUM (Cr.)

₹ 10,406

3Y Return

7.64%

Mirae Asset Low Duration Fund - Direct Growth

₹ 99

₹ 2,5620

7.58%

Min SIP Investment Amt

₹ 99

AUM (Cr.)

₹ 2,562

3Y Return

7.58%

Baroda BNP Paribas Low Duration Fund-Dir Growth

₹ 500

₹ 3120

7.56%

Min SIP Investment Amt

₹ 500

AUM (Cr.)

₹ 312

3Y Return

7.56%

FAQs

Low Duration Mutual Funds

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List of Low Duration Mutual Funds

Category

Sub Category

Rating

What is a Low Duration Mutual Fund?

Key Features of Low Duration Mutual Funds:

Major Advantages of a Low Duration Fund

How do Low Duration Mutual Funds Work?

Who Should Invest in Low Duration Funds?

How to Invest in Low Duration Funds?

Factors to Consider Before Investing

How Are Low Duration Funds Taxed?

Risks Involved When Investing in Low Duration Funds

Popular Low Duration Mutual Funds

HSBC Low Duration Fund - Direct Growth ₹ 1000 ₹ 9740 8.09% Min SIP Investment Amt ₹ 1000 AUM (Cr.) ₹ 974 3Y Return 8.09%

ICICI Pru Savings Fund - Direct Growth ₹ 100 ₹ 30,1630 7.84% Min SIP Investment Amt ₹ 100 AUM (Cr.) ₹ 30,163 3Y Return 7.84%

HDFC Low Duration Fund - Direct Growth ₹ 100 ₹ 24,6470 7.76% Min SIP Investment Amt ₹ 100 AUM (Cr.) ₹ 24,647 3Y Return 7.76%

Kotak Low Duration Fund - Direct Growth ₹ 100 ₹ 15,2830 7.75% Min SIP Investment Amt ₹ 100 AUM (Cr.) ₹ 15,283 3Y Return 7.75%

Aditya Birla SL Low Duration Fund-Dir Growth ₹ 100 ₹ 13,5650 7.67% Min SIP Investment Amt ₹ 100 AUM (Cr.) ₹ 13,565 3Y Return 7.67%

AXIS Treasury Advantage Fund - Direct Growth ₹ 100 ₹ 5,9790 7.65% Min SIP Investment Amt ₹ 100 AUM (Cr.) ₹ 5,979 3Y Return 7.65%

Mahindra Manulife Low Duration Fund - Dir Growth ₹ 500 ₹ 5990 7.64% Min SIP Investment Amt ₹ 500 AUM (Cr.) ₹ 599 3Y Return 7.64%

Nippon India Low Duration Fund - Direct Growth ₹ 100 ₹ 10,4060 7.64% Min SIP Investment Amt ₹ 100 AUM (Cr.) ₹ 10,406 3Y Return 7.64%

Mirae Asset Low Duration Fund - Direct Growth ₹ 99 ₹ 2,5620 7.58% Min SIP Investment Amt ₹ 99 AUM (Cr.) ₹ 2,562 3Y Return 7.58%

Baroda BNP Paribas Low Duration Fund-Dir Growth ₹ 500 ₹ 3120 7.56% Min SIP Investment Amt ₹ 500 AUM (Cr.) ₹ 312 3Y Return 7.56%

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