Low Duration Mutual Funds are one of the Debt funds. Debt can be categorized into 16 types as per SEBI’s rationalization and categorization norms. These categories were created to make choices simpler even for the new investor. This categorization has been done based on strategy and duration. Based on duration, debt funds are classified as overnight funds, liquid funds, ultra-short duration funds, low duration funds, short duration funds, medium duration funds, medium to long duration funds, and long duration funds. Here, we will explore Low Duration Funds and talk about various factors that you need to consider before investing in them.

What are Low Duration Mutual Funds?

Low Duration Funds invest in money market instruments and debt securities so that the Macaulay Duration of the fund is between six and twelve months. These funds are ideally suited to low-risk investors with a one-year investment horizon. Low Duration Funds have a higher maturity than liquid funds and overnight funds but lower maturity than short, medium and long duration funds. These funds allow investors to park their money for 6-12 months and earn returns better than a regular savings account. The average returns of these funds range between 6.5 and 8.5%.

How do Low Duration Funds work?

The fund manager of a low duration fund selects debt securities and money market instruments according to the investment objective of the fund ensuring that the Macaulay duration is between 6 and 12 months. 

Who should invest in Low Duration Mutual Funds?

After SEBI’s new categorization, it has become easier for investors to select a fund according to their financial goals, risk preferences, and investment horizon. A low duration fund focuses on investing in debt securities and money market instruments with a Macaulay duration of 6-12 months. Therefore, investors having an investment horizon of 6-12 months and lower risk tolerance can benefit from investing in low duration funds. These funds are also a good option for investing the idle funds lying in the savings account and earning better returns.

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Factors to consider before investing in Low Duration Mutual Funds in India

Here are some important aspects that you must consider before investing in debt funds in India:

Risks and Returns

Being a debt fund, a low duration fund also carries the three risks namely, credit risk, interest rate risk, and liquidity risk. Additionally, you must check the portfolio of the fund and analyze the securities in which the fund has invested. If there are any low-quality debt securities, then the risks can be enhanced. On an average, low duration funds offer returns between 6.5 and 8.5%. 

Expense Ratio

Since you are planning to invest for 6-12 months, the expense ratio can play an important role in determining your gains. This is the fee charged by the fund house towards fund management services. Look for schemes with a lower expense ratio to maximize your gains.

Invest according to your Investment Plan

Every successful investor has a solid investment plan based on his investment goals, risk preference, and investment horizon. Whether you are turning towards low duration funds for regular income or want to earn better returns on the idle funds parked in your savings account, ensure that you incorporate your new goal in your investment plan and invest accordingly.

Taxation for Low Duration Mutual Funds

Being a debt fund, the taxation rules for a low duration fund are as follows:

Capital Gains Tax

Before looking at the tax rates, here is a quick understanding of the ‘holding period’.

The Holding Period is the amount of time an investor holds the security. In other words, it is the time between buying and redeeming the units of the fund.

If the holding period is less than three years, then the gains earned by you are termed as Short Term Capital Gains or STCG. For low duration funds, STCG is added to your taxable income and taxed according to the applicable income tax slab.

If the holding period is more than three years, then the gains earned by you are termed as Long Term Capital Gains or LTCG. For low duration funds, LTCG is taxed at 20% with indexation benefits.

List of Low Duration Mutual Funds in India

Based on the returns of the last five years, here are the List of low duration funds in India.

List of Low Duration Mutual Funds in India
Fund Name 1Y 3Y 5Y Expense Ratio Turnover Ratio Category Risk
PGIM India Low Duration Fund Direct Plan Growth -9.14% 1.86% 5.1% 0.41% NA Debt
(Low Duration)
Low
Franklin India Low Duration Direct Plan Growth 8.85% 8.85% 9.37% 0.49% NA Debt
(Low Duration)
Moderate
Kotak Low Duration Fund Direct Growth 8.77% 8.4% 9.15% 0.32% NA Debt
(Low Duration)
Moderate
Principal Low Duration Fund Direct Growth -10.79% 1.14% 4.4% 0.34% NA Debt
(Low Duration)
Moderately Low
Edelweiss Low Duration Super Institutional Direct Plan Growth -4.32% 3.45% 3.49% 0.2% NA Debt
(Low Duration)
Moderately Low
HSBC Low Duration Fund Direct Growth -1.6% 4.26% 6.19% 0.21% NA Debt
(Low Duration)
Moderately Low
BNP Paribas Low Duration Fund Direct Growth 8.04% 7.59% 8.14% 0.11% NA Debt
(Low Duration)
Low
HDFC Low Duration Fund Direct Plan Growth 8.72% 7.83% 8.28% 0.41% NA Debt
(Low Duration)
Moderately Low
SBI Magnum Low Duration Fund Direct Plan Growth 8.77% 7.64% 8.12% 0.4% NA Debt
(Low Duration)
Moderately Low
L&T Low Duration Fund Direct Growth 6.16% 7.51% 8.46% 0.46% NA Debt
(Low Duration)
Moderate
Sundaram Low Duration Fund Direct Growth -1.76% 4.24% 6.11% 0.26% NA Debt
(Low Duration)
Moderately Low
IDFC Low Duration Fund Direct Growth 8.87% 7.79% 8.33% 0.31% NA Debt
(Low Duration)
Moderately Low
Reliance Low Duration Fund Direct Growth 7.11% 7.23% 7.96% 0.34% NA Debt
(Low Duration)
Moderately Low
Aditya Birla Sun Life Low Duration Fund Direct Growth 9.34% 8.18% 8.68% 0.38% NA Debt
(Low Duration)
Moderately Low
JM Low Duration Fund - Direct - Growth 6.4% 7.63% 8.23% 0.4% NA Debt
(Low Duration)
Moderately Low
DSP Low Duration Fund Direct Growth 8.02% 7.49% NA 0.18% NA Debt
(Ultra Short Duration)
Moderately Low
Mahindra Low Duration Bachat Yojana Direct Growth 8.92% NA NA 0.34% NA Debt
(Ultra Short Duration)
Moderately Low
Taurus Ultra Short Term Bond Fund Super Institutional Direct Growth 9.66% 4.33% 6.51% 0.21946634% NA Debt
(Low Duration)
Moderately Low
Mirae Asset Savings Fund Direct Plan Growth 7.31% 7.04% 7.45% 0.13% NA Debt
(Low Duration)
Moderately Low
UTI Treasury Advantage Fund Direct Growth -3.95% 3.49% 5.74% 0.25% NA Debt
(Low Duration)
Moderately Low


This is not a recommendation but a list of well-performing debt funds in India. Ensure that you follow your investment plan before investing.


 

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