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List of Long Duration Mutual Funds in 2024

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Fund name
Till Date CAGR
Nippon India Nivesh Lakshya Fund (G)

7771.928 Cr




ICICI Prudential Long Term Bond Fund (G)

834.558 Cr




HDFC Long Duration Debt Fund (G)

3020.068 Cr




Aditya Birla Sun Life Long Duration Fund (G)

119.883 Cr




Axis Long Duration Fund (G)

296.324 Cr




SBI Long Duration Fund (G)

1881.187 Cr




Long duration funds are open-ended mutual funds with the potential to offer high returns but with higher risk. These funds invest predominantly in highly volatile government and corporate bonds. They involve high risk and have a longer residual maturity period. Long duration funds generate returns from both interest income and capital appreciation. Fund managers select bonds with a Macaulay duration of more than seven years to invest for long-duration funds. Your investment can generate a higher return in comparison to other duration-based funds. The returns are better in a falling interest rate scenario.

What are Long Duration Funds?

Long duration funds invest a large portion (around 65%) of their total corpus in fixed income securities. These may be Government bonds, corporate bonds, Treasury Bills, and bonds issued by banks. The average maturity of long-duration funds is more than 36 months. Long-duration debt funds have a lower risk in comparison to equity. They offer moderate returns and efficient tax treatment due to indexation benefits. However, this benefit is no longer available from debt mutual funds from April 1st 2023.
Therefore, investors with a longer investment horizon prefer investing in long-duration funds. However, these funds are not recommended for individuals with a low-risk appetite.

Following are the different types of long-term debt funds:

Income Funds

Income funds invest with an aim at generating regular income. They invest their corpus in government and corporate bonds, certificates of deposits, and debt instruments. Income funds are highly vulnerable when the market is volatile in terms of interest rates. However, the interest rates of Income funds are not stable. The income debt funds are therefore suitable for investors with a long-term investment horizon and high risk-bearing capability. You must therefore plan your entry and exit in the fund properly. Proper planning will help you to make the most out of your investment. You must consider entering the fund when the interest rates are low and plan an exit when rates start rising.

Gilt Funds

Gilt funds invest in high-rated securities only, they are generally government securities. These may be securities of central and state governments. These securities have a long and medium maturity period accompanied by low credit risk. Low credit risk can be attributed to the fact that the government rarely defaults on its loans. Gilt Funds are ideal for risk-averse investors who are expecting a fixed income from their investments.

Dynamic Bond Funds

Dynamic Bond Funds comprises a dynamic portfolio in terms of composition and maturity periods. Fund managers of these funds change the portfolio composition as per fluctuations in the interest rate regime. Dynamic bond funds may have a huge number of assets under management. The valuation of these assets may be several thousand crores. Their average maturity duration fluctuates as these bonds take interest rate calls. Their investments include instruments of small as well as long maturities.

Advantages of Investing in Long Duration Funds

The following are the advantages of investing in long duration funds:

  • It offers a higher return as compared to many debt funds.
  • Investing in long-duration funds can help you achieve your medium-term goals.
  • The returns are higher in comparison to bank fixed deposits. Even investors in the higher income tax slabs can benefit from the higher tax-efficient returns. However, from April 1st 2023, capital gains are taxable as per the applicable IT slab rates of the investor.
  • Long duration funds are ideal for the diversification of a portfolio and offering it stability against market volatility.
  • These funds are suitable for generating income when the interest rates are unstable.
  • These schemes may provide almost similar returns as Bank Fixed Deposits. The duration for both may be similar in duration but the risk varies.
  • Indexation benefit is an additional advantage for investors who stay invested for at least 3 years. The longer duration makes the scheme more tax-efficient. However, from April 1st 2023, the debt mutual fund will no longer have the LTCG benefit. The capital gains will be taxable as per the investor’s IT slab rates.

Limitations of Investing in Long Duration Mutual Funds

Long duration funds involve a higher degree of interest rate risk in comparison to medium and short-duration funds. These are quite sensitive to changes in interest rates in the stock market. As the scheme invests a bulk of the corpus in bonds of a longer duration. The rising interest rate scenario impacts these funds as bond prices fall in that duration. The credit risk of government and corporate bonds affects long-duration debt funds. The chances of a loss on default or a downgrade of lower-rated securities increase.

Who should Invest in Long Duration Mutual Funds?

You may consider investing in long-duration debt funds if you are capable of bearing short-term volatility and have medium-term financial goals. It could offer a higher return in contrast to most debt funds. 

The fund invests in bonds of a longer duration so it is profitable for investors who are willing to invest for a longer-term. You will also have to bear the risk of fluctuating interest rates to get a higher return. It is advisable to invest in long duration funds with a time horizon of three to five years. Long duration funds invest in a mix of instruments including government and corporate bonds of a longer time. These schemes are more volatile in comparison to short-term debt funds that focus on coupon income. Capital gains augment the interest income to offer a better return.

Things To Consider Before Investing in Long Duration Funds

Investment Objectives – Long-duration funds may help you achieve medium-term financial goals. Therefore, you must plan your investment for a longer duration to achieve substantial returns.

Time Horizon – You must invest in long duration funds with a time horizon of three to five years to achieve good returns.

Risk – Long duration funds involve higher risk than many debt funds. It is vulnerable to interest rate fluctuations owing to investments in long-duration funds.

Return – Long-duration funds offer higher returns than medium-duration ones. The fund has the potential to generate a higher return in a falling interest rate scenario. You must review fund performance by analyzing consistent returns over a long term (around 3-10 years). Consequently, you can select funds that have outperformed their peer funds. They are good for investment if they have crossed the benchmark rate of return across different time frames.

Expense Ratio – A high expense ratio may lower your return from the fund. The expense ratio shows the amount a fund house charges for managing several expenses of the debt fund. It decreases the Net Asset Value (NAV) of the fund and further reduces your returns. Therefore, you should choose a fund with a low expense ratio.

Financial Ratios – A debt fund can be analyzed on the basis of financial ratios. These ratios are standard deviation, Sharpe ratio, alpha, and beta, etc. If the standard deviation and beta are high the fund is risky. You can pick a debt fund with a higher Sharpe ratio. Such funds offer a risk-adjusted return on the portfolio.

Taxation on Long Duration Funds

Long-duration funds are liable to taxes similar to those applicable to debt funds. The short-term capital gains (STCG) are applicable after a holding period below 36 months. The capital gains are added to your taxable income and tax is payable as per your income tax slab. The long-term capital gains (LTCG) are applicable after a holding period of 36 months or more. It is taxable at 20% with the indexation benefit. The benefit of indexation helps you adjust for inflation by fixing the purchase price of the long duration bond. The dividends from these funds are taxable as per your income tax slab. If you are an investor falling in a high-income tax bracket you can leverage these funds. They generate tax-efficient income in comparison to bank fixed deposits of similar durations.

Furthermore, as per the Finance Bill 2023, debt mutual funds will no longer have the LTCG benefit. Capital gains arising from debt mutual fund investments from April 1st 2023, will be taxable as per the applicable IT slab rate of the investor.

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