Medium Duration Mutual Funds

Q: What is the Macaulay duration of a medium duration fund?

Medium duration mutual funds are required to maintain a Macaulay duration between 3 and 4 years, placing them in the mid-range of interest rate sensitivity and return potential.

Q: Can I redeem my investment from a medium duration fund anytime?

Yes, these funds are open-ended, which means you can redeem your investment at any time, although some may charge a small exit load if withdrawn within a few months.

Q: What kind of returns can I expect from Medium Duration Funds?

Returns from Medium Duration Funds can vary based on market interest rates, credit quality of holdings, and fund manager strategy, offering a balance between income and potential capital gains.

Q: Is SIP a good option for investing in Medium Duration Mutual Funds?

Yes, SIPs can help you invest regularly and average out interest rate risks over time, making them suitable for building a medium-term debt portfolio with disciplined allocation.

Q: Are Medium Duration Funds better than fixed deposits?

Medium duration funds may offer better post-tax returns and higher flexibility than fixed deposits, but they also carry moderate risk, so suitability depends on your financial goals and risk tolerance.

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

No, Medium Duration Funds do not come with a lock-in period, offering high liquidity to investors; however, check for any applicable exit load before redeeming your units early.

Q: How do Medium Duration Funds respond to interest rate changes?

These funds are moderately sensitive to interest rate movements, which means their NAV may experience short-term fluctuations, but they generally stabilise when held for the full investment horizon.

Q: How should I assess the performance of a medium duration fund?

You should evaluate a fund’s performance based on historical returns, consistency across interest rate cycles, credit quality, portfolio composition, and how effectively the fund manager navigates macroeconomic changes.

Q: What is the ideal investment horizon for Medium Duration Mutual Funds?

Investors should ideally remain invested for at least 3 to 4 years to ride through interest rate cycles and allow the fund to deliver its intended balance of stability and growth.

Q: When is a good time to invest in Medium Duration Funds?

Medium duration funds are suitable during periods of stable to declining interest rates or when you seek a mid-term option offering better returns than short-term funds with manageable risk.

Medium Duration Funds offer a compelling solution for investors aiming to balance risk and returns over a slightly longer horizon than low-duration debt options. As per SEBI's classification, these funds invest in debt instruments such that the Macaulay duration of the portfolio is between 3 and 4 years. This makes the best Medium Duration Funds moderately sensitive to interest rate changes, providing a sweet spot between short-term stability and medium-term growth.

These funds are generally ideal for those who are looking to stay invested for at least 3 years, benefit from the accrual and potential price appreciation, and are comfortable with moderate fluctuations in returns.

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List of Medium Duration Mutual Funds

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Search Result - 13 Mutual Funds

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

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

What is a Medium Duration Fund?

A medium-duration fund is a type of debt fund that typically invests in bonds and money market instruments with maturities aligned to maintain a Macaulay duration between 3 and 4 years. The goal is to optimise returns by combining interest income with moderate capital gains while keeping volatility within acceptable limits for medium-term investors.

Key Features of Medium Duration Funds

1. Investment Type: Primarily invests in corporate bonds, government securities, high-rated debentures, etc.
2. Duration Strategy: Targets a portfolio maturity of 3 - 4 years, allowing room for capital gains without being overly exposed to interest rate shocks.
3. Return Potential: Better than low-duration funds due to longer holding periods and active interest rate management.
4. Risk Profile: Moderate - higher than low duration but lower than long duration debt funds.
5. Ideal For: Investors with a 3 - 4 year investment horizon who want better returns than short-term debt funds without entering the high-risk long-duration space.

Major Advantages of a Medium Duration Fund

Medium term mutual fund duration are strategically designed to serve investors with intermediate financial goals. Here’s why they are gaining popularity:

1. Attractive Yield Potential: Longer maturity instruments tend to offer higher coupon rates, improving return prospects over a 3–4 year horizon.
2. Balanced Risk-Reward Equation: Another advantage of Medium Duration Funds is that they are positioned between low-risk short-term funds and high-risk long-term funds, offering a moderate risk-return profile.
3. Opportunity for Capital Gains: Actively managed portfolios may benefit from falling interest rates, as longer-dated instruments tend to gain more in such cycles.
4. Portfolio Diversification: These funds help diversify your fixed-income exposure without being too conservative or aggressive.

How Do Medium Duration Funds Work?

Medium duration funds work by investing in a diverse mix of fixed-income securities that typically mature in 3 to 4 years. The fund manager’s goal is to earn steady interest income while also capturing potential gains if bond prices rise - usually when interest rates fall.

Rather than sticking to a fixed strategy, these funds are actively managed. Fund managers keep a close watch on key economic indicators—such as RBI’s rate decisions, inflation data, and fiscal trends—to rebalance the portfolio when needed. This helps align the fund’s risk and return profile with current market conditions.

The investments span across a balanced mix of government bonds, corporate bonds, and other fixed-income instruments, selected based on interest rate outlook, credit quality, and liquidity needs.
Returns in Medium Duration Funds primarily come from the interest (coupon) payments made by these bonds. However, there's also room for capital appreciation if interest rates decline after your investment-making the existing bonds more valuable in the secondary market.

Because these funds sit in the intermediate zone, their Net Asset Value (NAV) may fluctuate more than low duration funds—but less than long-term ones. Investors who stay invested through the interest rate cycle often benefit from this balance of accrual and growth.

Who Should Invest in Medium Duration Funds?

Medium duration mutual funds are suited for investors who can commit funds for at least three years and are comfortable with moderate NAV movements in exchange for potentially higher returns.

1. Goal-Oriented Investors: Planning for medium-term financial goals like education, car purchase, or business investment.
2. Tax-Conscious Investors: When held for over 3 years, earlier tax rules allowed indexation benefits, which may return if debt taxation is revised in future budgets.
3. Savers Upgrading from FDs: Ideal for those ready to move beyond fixed deposits but not comfortable with equity volatility.
4. Debt Allocation Seekers: For investors building a diversified portfolio with a medium-term fixed income component.

How to Invest in Medium Duration Funds?

1. Pick a Platform: To invest in Medium Duration Funds, you have to sign up on a trusted investing app like 5paisa.
2. Complete KYC: Have your PAN, Aadhaar, and bank details ready.
3. Explore Fund Options: Compare funds using filters like return history, credit quality, duration, and expense ratio.
4. Choose Investment Mode: Decide between SIP for regular investing or lump sum for immediate allocation.
5. Monitor & Adjust: Keep an eye on interest rate trends and rebalance if needed.

Factors to Consider Before Investing

1. Interest Rate Outlook: Rising interest rates can temporarily impact NAVs. Stay invested to ride through the cycle.
2. Credit Quality: Check the credit profile of the fund—higher-rated bonds reduce default risk.
3. Expense Ratio: A lower fee structure helps retain more of your returns over time.
4. Exit Load: Some funds levy charges if redeemed within 1–2 years. Read the scheme document carefully before you choose to invest in any fund.
5. Taxation: All gains are currently taxed as per your income tax slab, regardless of holding period.

Taxation of Medium Duration Funds

Medium duration funds are classified as debt mutual funds for taxation purposes. According to current tax regulations, any capital gains earned from these funds are taxed based on your applicable income tax slab. This applies regardless of the holding period—whether you stay invested for less than three years or longer, there is no distinction between short-term and long-term capital gains for taxation. To give you a detailed overview, here’s how Medium 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 fall under a higher tax bracket, this can impact your post-tax returns, so it’s important to consider this before investing. Always consult a qualified tax professional for advice tailored to your financial situation and to stay informed about any changes in tax rules.

Risks in Medium Duration Funds

1. Interest Rate Risk: These funds are more sensitive than short-term funds, so rising rates can cause short-term volatility.
2. Credit Risk: Lower-rated bonds may offer higher returns but carry higher default risk.
3. Reinvestment Risk: If interest rates fall, reinvestment of maturing securities may yield lower returns.
4. Liquidity Risk: Some lower-rated or long-dated instruments may not be easily sold during stressed market conditions.

Popular Medium Duration Mutual Funds

Fund Name
Min Investment Amt
AUM
3Y Returns

Aditya Birla SL Medium Term Plan - Direct Growth

₹ 1000

₹ 2,9050

10.73%

Min SIP Investment Amt

₹ 1000

AUM (Cr.)

₹ 2,905

3Y Return

10.73%

Kotak Medium Term Fund - Direct Growth

₹ 100

₹ 2,0150

9.04%

Min SIP Investment Amt

₹ 100

AUM (Cr.)

₹ 2,015

3Y Return

9.04%

Nippon India Medium Duration Fund - Direct Growth

₹ 100

₹ 1380

8.87%

Min SIP Investment Amt

₹ 100

AUM (Cr.)

₹ 138

3Y Return

8.87%

AXIS Strategic Bond Fund - Direct Growth

₹ 100

₹ 2,0590

8.66%

Min SIP Investment Amt

₹ 100

AUM (Cr.)

₹ 2,059

3Y Return

8.66%

ICICI Pru Medium Term Bond Fund - Direct Growth

₹ 1000

₹ 5,7080

8.61%

Min SIP Investment Amt

₹ 1000

AUM (Cr.)

₹ 5,708

3Y Return

8.61%

HSBC Medium Duration Fund - Direct Growth

₹ 1000

₹ 7790

8.28%

Min SIP Investment Amt

₹ 1000

AUM (Cr.)

₹ 779

3Y Return

8.28%

HDFC Medium Term Debt Fund - Direct Growth

₹ 100

₹ 3,8420

8.08%

Min SIP Investment Amt

₹ 100

AUM (Cr.)

₹ 3,842

3Y Return

8.08%

SBI Medium Duration Fund - Direct Growth

₹ 500

₹ 6,8890

8.06%

Min SIP Investment Amt

₹ 500

AUM (Cr.)

₹ 6,889

3Y Return

8.06%

DSP Bond Fund - Direct Growth

₹ 100

₹ 3140

7.68%

Min SIP Investment Amt

₹ 100

AUM (Cr.)

₹ 314

3Y Return

7.68%

Invesco India Medium Duration Fund-DirGrowth

₹ 1000

₹ 1760

7.59%

Min SIP Investment Amt

₹ 1000

AUM (Cr.)

₹ 176

3Y Return

7.59%

FAQs

Medium Duration Mutual Funds

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List of Medium Duration Mutual Funds

Category

Sub Category

Rating

What is a Medium Duration Fund?

Key Features of Medium Duration Funds

Major Advantages of a Medium Duration Fund

How Do Medium Duration Funds Work?

Who Should Invest in Medium Duration Funds?

How to Invest in Medium Duration Funds?

Factors to Consider Before Investing

Taxation of Medium Duration Funds

Risks in Medium Duration Funds

Popular Medium Duration Mutual Funds

Aditya Birla SL Medium Term Plan - Direct Growth ₹ 1000 ₹ 2,9050 10.73% Min SIP Investment Amt ₹ 1000 AUM (Cr.) ₹ 2,905 3Y Return 10.73%

Kotak Medium Term Fund - Direct Growth ₹ 100 ₹ 2,0150 9.04% Min SIP Investment Amt ₹ 100 AUM (Cr.) ₹ 2,015 3Y Return 9.04%

Nippon India Medium Duration Fund - Direct Growth ₹ 100 ₹ 1380 8.87% Min SIP Investment Amt ₹ 100 AUM (Cr.) ₹ 138 3Y Return 8.87%

AXIS Strategic Bond Fund - Direct Growth ₹ 100 ₹ 2,0590 8.66% Min SIP Investment Amt ₹ 100 AUM (Cr.) ₹ 2,059 3Y Return 8.66%

ICICI Pru Medium Term Bond Fund - Direct Growth ₹ 1000 ₹ 5,7080 8.61% Min SIP Investment Amt ₹ 1000 AUM (Cr.) ₹ 5,708 3Y Return 8.61%

HSBC Medium Duration Fund - Direct Growth ₹ 1000 ₹ 7790 8.28% Min SIP Investment Amt ₹ 1000 AUM (Cr.) ₹ 779 3Y Return 8.28%

HDFC Medium Term Debt Fund - Direct Growth ₹ 100 ₹ 3,8420 8.08% Min SIP Investment Amt ₹ 100 AUM (Cr.) ₹ 3,842 3Y Return 8.08%

SBI Medium Duration Fund - Direct Growth ₹ 500 ₹ 6,8890 8.06% Min SIP Investment Amt ₹ 500 AUM (Cr.) ₹ 6,889 3Y Return 8.06%

DSP Bond Fund - Direct Growth ₹ 100 ₹ 3140 7.68% Min SIP Investment Amt ₹ 100 AUM (Cr.) ₹ 314 3Y Return 7.68%

Invesco India Medium Duration Fund-DirGrowth ₹ 1000 ₹ 1760 7.59% Min SIP Investment Amt ₹ 1000 AUM (Cr.) ₹ 176 3Y Return 7.59%

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