Debt offers a plethora of options to conservative investors. With SEBI classifying debt funds into 16 categories, it is now easier for investors to find a debt fund that suits their investment objectives. Since debt funds invest in instruments which facilitate buying and selling of loans, the duration of investment plays an important role in ascertaining returns. As an investor, your investment horizon should match up with the maturity of the debt fund for maximum benefit. Here, we will explore Medium Duration Mutual Funds and talk about all the important aspects that you need to know before investing in them.

What are Medium Duration Mutual Funds?

Medium Duration Funds invest in debt securities and money market instruments so that the Macaulay Duration of the fund’s portfolio is between three and four years. Hence, these funds are recommended to conservative investors with a four-year investment horizon. Medium Duration Funds have a higher maturity than overnight funds, liquid funds, ultra-short duration funds, low duration funds, money market funds, and short duration funds but lower maturity than medium to long duration funds and long duration funds. These funds are best suited for investors who want to meet certain financial goals in 3 years and are a good alternative to bank deposits. The average returns of these funds range between 7 and 9%.

How do Medium Duration Funds work?

The fund manager of a medium duration fund selects money market instruments and debt securities according to the investment objective of the fund ensuring that the Macaulay duration is between 3 and 4 years. 

Who should invest in Medium Duration Mutual Funds?

SEBI has now made it easier for investors to choose the right debt fund based on their investment plan. Since the Macaulay duration of the portfolio of a medium duration fund is between 3 and 4 years, it is best suited to investors with an investment horizon of little over three years and a lower risk preference. Further, these funds tend to offer better returns than a fixed deposit for a similar tenure. It is important to ensure that you invest according to your financial plan and investment objectives.

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

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

Risks and Returns

A medium duration fund is basically a debt fund. Hence, like all other debt funds, these funds also carry the three risks – credit risk (or the risk of default by the issuer), interest rate risk (effect of an increase or decrease in interest rates on the value of the fund), and liquidity risk (of the fund house). Hence, it is important to ensure that you analyze the portfolio to ensure that the fund invests in high-quality debt securities so that the credit risk is negligible. Also, research the fund manager and check how he has performed through different interest rate regimes. An experienced fund manager can help you weather the storm of a rising interest rate period optimally. A well-managed medium duration portfolio should earn around 7-9% returns.

Expense Ratio

Expense ratio plays an important role in debt funds since the returns are already low. The expense ratio is a fee charged by the mutual fund towards fund management services and is denoted as a small percentage of the total assets of the scheme. A low expense ratio will imply a better chance to maximize your gains.

Investment Plan

You need a well-thought over investment plan in order to meet your financial goals effectively. This means that you need a clear definition of your investment objectives, risk tolerance, and the period for which you would want to stay invested. Medium duration funds are good for conservative investors with 3-4 year financial goals. If you have shorter or longer goals, then look for schemes that suit your requirements adequately. Medium duration funds can offer returns in the range of 7 to 9%.

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List of Medium Duration Mutual Funds in India

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

List of Medium Duration Mutual Funds in India
Fund Name 1Y 3Y 5Y Expense Ratio Turnover Ratio Category Risk
SBI Magnum Medium Duration Fund Direct Growth 10.66% 9.54% 10.29% 0.74% NA Debt
(Medium Duration)
Moderate
Indiabulls Income Fund Direct Growth 9.63% 8.22% 9.54% 0.26% NA Debt
(Medium Duration)
Moderate
UTI Medium Term Fund Direct Growth 7.03% 7.48% NA 1.14% NA Debt
(Medium Duration)
Moderate
BNP Paribas Medium Term Fund Direct Growth -1.63% 3.58% 6.24% 0.58% NA Debt
(Medium Duration)
Moderate
Tata Medium Term Fund Direct Growth -8.34% 1.24% 5.11% 0.45% NA Debt
(Medium Duration)
Moderate
HDFC Medium Term Debt Fund Direct Plan Growth 9.65% 7.86% 8.85% 0.49% NA Debt
(Medium Duration)
Moderate
DSP Bond Direct Growth 2.09% 5.11% 7.78% 0.33% NA Debt
(Medium Duration)
Moderate
IDFC Bond Fund Medium Term Plan Direct Growth 11.19% 8% 8.92% 0.76% NA Debt
(Medium Duration)
Low
Sundaram Medium Term Bond Fund Direct Growth 9.12% 7.59% 8.69% 1.27% NA Debt
(Medium Duration)
Moderate
Reliance Strategic Debt Fund Direct Growth -0.36% 5% 7.7% 0.83% NA Debt
(Medium Duration)
Moderate
ICICI Prudential Medium Term Bond Fund Direct Plan Growth 7.81% 7.62% 8.97% 0.87% NA Debt
(Medium Duration)
Low
Kotak Medium Term Fund Direct Growth 6.53% 7.23% 9.13% 0.86% NA Debt
(Medium Duration)
Moderate
Franklin India Income Opportunities Direct Plan Growth 7.87% 8.84% 9.5% 0.82% NA Debt
(Medium Duration)
Moderate
DHFL Pramerica Medium Term Fund Direct Growth -49.99% -16.49% -6.49% 0.3% NA Debt
(Medium Duration)
Moderate
Axis Regular Saver Fund Direct Growth -1.93% 4.94% 7.37% 1.25% NA Debt
(Medium Duration)
Moderately High
Axis Strategic Bond Fund Direct Growth 7.67% 7.97% 9.71% 0.39% NA Debt
(Medium Duration)
Moderate
L&T Resurgent India Bond Fund Direct Growth 7.55% 7.03% NA 0.86% NA Debt
(Medium Duration)
Moderate
Aditya Birla Sun Life Medium Term Direct Plan Growth 4.68% 6.95% 8.75% 1.0% NA Debt
(Medium Duration)
Moderate
Kotak Bond Fund Direct Growth 12.95% 6.85% 9.16% 0.79% NA Debt
(Medium to Long Duration)
Moderate
UTI Bond Fund Direct Growth -2.39% 3.32% 6.83% 0.89% NA Debt
(Medium to Long Duration)
Moderate

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


 

Asset Management Company
Axis Mutual Fund DHFL Pramerica Mutual Fund Principal Mutual Fund
Kotak Mutual Fund Sundaram Mutual Fund BOI Axa Mutual Fund
Reliance Mutual Fund Invesco Mutual Fund Union Mutual Fund
HDFC Mutual Fund LIC Mutual Fund Taurus Mutual Fund
SBI Mutual Fund JM Financial Mutual Fund Edelweiss Mutual Fund
ICICI Prudential Mutual Fund Baroda Pioneer Mutual Fund Essel Mutual Fund
Aditya Birla Sunlife Mutual Fund Canara Robeco Mutual Fund Mahindra Mutual Fund
UTI Mutual Fund HSBC Mutual Fund Quantum Mutual Fund
Franklin Templeton Mutual Fund IDBI Mutual Fund PPFAS Mutual Fund
IDFC Mutual Fund Indiabulls Mutual Fund IIFL Mutual Fund
DSP Blackrock Mutual Fund Motilal Oswal Mutual Fund Escorts Mutual Fund
Tata Mutual Fund BNP Paribas Mutual Fund
L and T Mutual Fund Mirae Asset Mutual Fund