Low duration funds are open-ended debt funds that invest in short-term debt securities. These funds are suitable for an investment horizon of 3 months or higher. Consider your financial goals before making an investment.
Mutual funds for all your goals
Top ELSS funds to save tax the smart way
Top liquid funds for life's surprise expenses
Under 1 year
Create custom plans for your dreams
Top Best Low Duration Mutual Funds for long-term growth
Till Date CAGR
|HDFC Low Duration (G)|
|Aditya Birla Sun Life Low Duration (G)|
|Nippon India Low Duration Fund (G)|
|ICICI Prudential Savings Fund (G)|
|Axis Treasury Advantage fund (G)|
|Bandhan Low Duration Fund (G)|
|Kotak Low Duration Fund Standard Plan (G)|
|SBI Magnum Low Duration Fund (G)|
|DSP Low Duration Fund (G)|
|Tata Treasury Advantage Fund (G)|
|Invesco India Treasury Advantage Fund (G)|
|UTI Treasury Advantage Fund (G)|
|LIC MF Savings Fund (G)|
|Canara Robeco Savings Fund (G)|
|Baroda BNP Paribas Low Duration Fund (G)|
|Mahindra Manulife Low Duration Fund (G)|
|Mirae Asset Savings Fund Savings Plan (G)|
|HSBC Low Duration Fund (G)|
|Sundaram Low Duration Fund (G)|
|PGIM India Low Duration Fund (G)|
Low duration funds are open-ended debt schemes that invest your money in short-term debt securities. The Macaulay duration of these investments is between 6-12 months. A Low term fund gives a better short-term return as compared to liquid funds. Low tenure funds leverage investment rate movements to offer liquidity and return at moderate risk. Fund Managers put your money in low-duration fixed income instruments to generate significant returns.
A large number of investors prefer to keep their money in a savings account. They avoid investing in Mutual funds because they involve market risk. However, Low-duration funds offer such investors liquidity while reducing the risk. It makes them suitable for individuals with lesser risk appetites as they are conservative about their resources. Investors can gain from interest rate changes and get high returns upon investing in Low term funds.
Low-duration Funds invest your money in market instruments and debt securities. They ensure the Macaulay Duration of the fund is between six and twelve months. These funds are suitable for investors who are willing to take low-risk. You can invest in these funds if you have a one-year investment horizon. The maturity of these funds is high in comparison to liquid funds and overnight funds. But it is lower when compared to short, medium, and long duration funds. These funds are ideal for investors who wish to park their money for 6-12 months. You can earn better returns with Low Duration Funds than a regular savings account. The average returns on your investment would range between 6.5 and 8.5%.
|Fund Name||Return Since Inception||Expense Ratio|
|HDFC Low Duration||7.10%||1.04%|
|Aditya Birla Sun Life Low Duration Fund Institutional||7.20%||1.21%|
|Kotak Low Duration Fund Standard Plan||7.30%||1.30%|
|SBI Magnum Low Duration Fund||7.30%||0.96%|
|Nippon India Low Duration Fund||7.60%||1.04%|
Low-duration funds work on the concept of duration. Any investor must understand the duration concept before investing in these funds.
The duration of a debt fund affects its investment decisions. It also defines the type and amount of returns earned by the fund.
The duration of a debt fund measures the fluctuations in a fund’s value in response to the changes in market interest rates. We also refer to duration as interest rate risk. Therefore, the fund value becomes more volatile with higher duration and the associated interest rate risk is greater.
Calculating duration requires a complex formula and data on the fund’s investments. Investors can skip the tedious process and follow a simple thumb rule to estimate fund time horizon. It can be derived through the maturity of bonds held by the mutual fund. Funds holding long-maturity bonds will have a higher tenure and those holding shorter maturity bonds will have a low term. If a fund increases holdings of long-term bonds its duration and interest rate risk increase.
SEBI has laid down rules to define fund duration. As per the guidelines, Low duration funds have to maintain a duration between 6‐12 months. Low-duration funds generally invest in short-term debt securities. Thus, they have relatively low interest rate risk. The restrictions are on the duration of funds not on the type or credit quality of debt assets. Hence low duration funds invest in a wide range of securities. These include:
Low duration funds earn from debt securities. Their earnings are from interest as well as capital gains. Interest earnings come from holding a part of their assets in bonds with credit ratings of AA or lower. These bonds pay relatively higher interest rates in comparison to lower-rated bonds that yield more. But the risk of default is more with lower-rated bonds.
Low-term funds also take some credit risk to deliver higher returns to their investors. They have the potential to generate capital gains by increasing exposure in longer maturity bonds. Fund managers respond to falling interest rates by exposing more to long-maturity bonds. It helps in pushing up the value of the fund. Thus, these short term funds generate returns for investors by using strategies based on credit risk as well as interest rate risk.
Low duration mutual funds are subject to credit risk. As these funds invest in lower-quality debt instruments (lower-rated paper), they expose investments to a higher chance of default. Low term funds have a moderate level of risk. This means the chance of loss from the change in interest rate is moderate. However, you must also understand the interest rate risk that exists in all debt funds.
You can invest in low duration mutual funds if you are among the following categories of investors:
You must consider these important factors before processing investment in low-duration funds:
As we have seen, Low duration mutual funds are debt funds. It gives your money exposure in a range of money markets and debt securities if your portfolio duration is between 6 to 12 months. Low-term funds are the lowest risk ones among all other duration-based schemes. They still have a higher interest rate and credit risk when compared to liquid and overnight funds. Low-duration funds earn a good return through a combination of interest and capital gains on the debt holdings. You can select short term funds if you have a financial goal to be met within an investment horizon higher than 3 months. Investors can leverage the potential of these funds to earn a regular income with moderate risk. You can also use it as a medium to route funds in the equities market or other long-term funds.