scripbox logo
    scripbox logo
    search iconsearch icon
    user avatarLogin
    • right-arrow
    • Mutual Funds
      right-arrow
    • Low Duration Fund

    Low Duration Fund

    Invest in the best low duration funds recommended by Scripbox that are algorithmically selected that best suit your needs

    long term funds

    Long Term Wealth

    Top equity mutual funds for long-term goals

    5+ years

    short term funds

    Short Term Money

    Best debt mutual funds for short term investing

    1-5 years

    tax saving funds

    Tax Saver Plan

    Top ELSS funds to save tax the smart way

    Lowest lock-in

    emergency funds

    Emergency Money

    Top liquid funds for life's surprise expenses

    Under 1 year

    equity-funds

    See all equity funds

    Top Equity mutual funds for long-term growth

    Filters

    Reset Filters1

    Scripbox Opinion

    Fund Category

    EquityDebtHybridInternational EquitySolution Oriented

    Minimum Investment

    500+

    Fund House

    See 40 other fund houses

    Show advanced filters

    List of Low Duration Mutual Funds

    Sort by

    Low Duration

    close
    Fund NameScripbox Opinion
    Till Date CAGR

    ICICI Prudential Savings Fund (G)

    recommended-badge

    7.6%

    8%

    recommended-badge

    6.8%

    7.4%

    top-ranked-badge

    6.7%

    7.4%

    top-ranked-badge

    5.8%

    4.7%

    top-ranked-badge

    4.8%

    5.7%

    top-ranked-badge

    7.4%

    7.8%

    top-ranked-badge

    4.8%

    5.7%

    top-ranked-badge

    5.4%

    5.7%

    top-ranked-badge

    5.1%

    5.2%

    top-ranked-badge

    5.3%

    5%

    top-ranked-badge

    6.4%

    6.3%

    top-ranked-badge

    6.4%

    6.2%

    top-ranked-badge

    -0.2%

    4.8%

    top-ranked-badge

    6.4%

    10.4%

    top-ranked-badge

    7.4%

    7.8%

    top-ranked-badge

    6.8%

    6.6%

    top-ranked-badge

    4.7%

    5.2%

    top-ranked-badge

    6.8%

    6.6%

    top-ranked-badge

    5.4%

    5.1%

    top-ranked-badge

    5.4%

    5.7%

    Achieve Life Goals

    Find funds that suit your investment objective
    my first crore

    My First Crore

    retire confidently

    Retire Confidently

    child-education

    Child Education

    dream planner

    Dream Planner

    PreviousNext

    Explore best mutual funds across categories

    Best Mutual Funds

    The best performing mutual funds to invest in 2021

    Best Equity Funds

    The best performing equity mutual funds to invest in 2021.

    Best Debt Funds

    The best performing debt mutual funds to invest in 2021

    Best ELSS Funds

    The best performing ELSS tax saving mutual funds to invest in 2021

    Best Liquid Funds

    The best performing liquid mutual funds to invest in 2021

    Best SIP FundsBest Debt FundsBest Diverisifed FundsBest Mid Cap FundsBest Tax Saver FundsBest Large Cap FundsBest International FundsBest Small Cap FundsBest Short Term FundsBest Index FundsBest Long Term FundsBest Multi Cap Funds
    How does Scripbox rate funds?

    Proprietary 4-step system to rate mutual funds

    We use a proprietary system to rate mutual funds and based on that make a recommendation or rate the fund as top ranked.

    What Scripbox recommendations mean?
    Scripbox algorithm recommends 2-4 funds for investment for an investment asset class such as large cap, diversified, liquid etc. When you invest for an objective, the algorithm suggests the appropriate asset class and funds.
    Track Record

    Track Record

    We look at consistent and long historical performance for our analysis.

    Fund Size

    Fund Size

    We look at the size of the fund with respect to other funds in the category. Larger funds are preferred.

    Sub-asset Class View

    Sub-asset Class View

    We check if the sub-category of the fund is recommended by us.

    Fund Performance

    Fund Performance

    Consistency of performance over various tenures is analysed for a relative performance stack.

    Track Record

    Track Record

    We look at consistent and long historical performance for our analysis.

    Fund Size

    Fund Size

    We look at the size of the fund with respect to other funds in the category. Larger funds are preferred.

    Impact of Interest Rates

    Impact of Interest Rates

    We check the relative interest rate risk of the sub-category of the fund. Lower the better.

    Credit Attractiveness

    Credit Attractiveness

    We check the credit quality of the underlying instruments present in the fund. Higher the better.

    Equity Funds

    Debt Funds

    How to invest in Low Duration Fund?

    Investing through Scripbox is made easy and paperless. All you need to do is follow the below steps and start investing.

    choose long term plan

    Choose a plan

    Choose a plan to invest to start investingmore...

    create account

    Create an Account

    Create an account with Scripbox through a paperless process, to invest in this fundmore...

    invest online

    Invest online & transfer

    Invest via netbanking, UPI or through an SIP (eNACH mandate).more...

    track investments

    Track your investments

    Track, invest more and withdraw your investments through the Scripbox dashboardmore...

    scripmark
    The Scripbox Promise

    Scripbox has helped over 2500 people become millionaires in the last 9 years

    Start Investing Now
    fund selection

    Fund Selection

    You'll never have to worry about what funds to choose. We'll suggest what's best for you.

    continuous monitoring

    Continuous monitoring & alerts

    We will track our recommendations and suggest changes & fund exists whenever required.

    call assistance

    All week call assistance

    Our customer champions are available 7 days a week from 8AM to 8PM.

    annual reviews

    Annual reviews & rebalances

    We review your investments and make course corrections every year to make the best out of your investments

    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.

    Categorization of these funds is done according to Debt. There are 16 types of debts as per SEBI’s rationalization norms. These categories make it easier for investors to pick the right fund.  The categorization is based on strategy and duration.

    Debt funds are classified based on their duration into-

    In this article, we will talk about Low Duration Funds and factors you must consider before investing in them.

    What are Low Duration 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%.

     

    How do Low Duration Mutual Funds Work?

    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.

    Duration

    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.

    Definition of Low Duration

    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:

    • Money market securities
    • Government securities
    • Corporate bonds
    • Securitized debt
    • Hybrid instruments like REITs, Permitted derivatives, or even other mutual fund units

    Sources of Earnings

    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.

    Advantages of Investing in Low-Duration Funds

    Moderate Risk

    Low-duration funds expose your money to a moderate level of interest rate risk. These funds do not usually hold securities with a maturity higher than 1‐1.5 years. It becomes a win-win situation as you get good returns with interest rate fluctuations in the market. To understand this simply, consider interest rates are falling but your investment is at a lesser risk. As the loss of interest income on fresh bonds will be much lesser than the capital gains on existing bond values. 

    Now if interest rates are increasing again you are exposed to lesser risk. As the funds cut back on the tenure and capital losses minimize. You are also simultaneously earning higher interest rates on the new bonds. Thus, we see the value of low term funds is less volatile in contrast to longer-duration funds. Earlier there were no well-defined credit exposure norms for ahort term funds. However, now most low-duration schemes hold reasonably good quality debt. This fund category is suitable for investors with a moderate risk appetite.

    High Returns

    Low-duration mutual funds take on greater credit and time horizon exposure. They generally outperform liquid funds in terms of returns. These fund schemes also have the potential to give better returns than ultra-short duration funds. The funds make higher capital gains by holding longer-duration maturity bonds.

    Limitations of Investing in Low Duration Mutual Funds

    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

    Who should Invest in Low Duration Mutual Funds?

    You can invest in low duration mutual funds if you are among the following categories of investors:

    • You have an investment horizon of more than 3-months: Low-duration fund schemes are ideal for you if your investment horizon is of 3 months or higher. If you have a very short investment horizon then you must opt for low-risk overnight or liquid funds. However, if you have a holding period longer than 3 months then low term funds offer better returns. You enjoy higher returns in exchange for slightly greater risk. You can select these funds for temporarily parking your surplus earnings. These may be from the sale of a property or an annual bonus. The mutual fund has a low tenure making it ideal for accumulating funds for fulfilling a short-term financial goal.
    • You want regular income: Low term funds provide investors a regular income. You earn returns from your mutual funds through a combination of interest earnings and capital gains. If you have a moderate risk appetite you can allocate a part of your portfolio to low term mutual funds. Use an SWP (Systematic Withdrawal Plan) to create a steady income flow.
    • You want an alternative to bank deposits: You may find these funds more attractive than bank deposits if you have a moderate risk appetite. These funds offer better liquidity and you also earn higher market‐linked returns.

    Things To Consider for Investing in Low Duration Funds

    You must consider these important factors before processing investment in low-duration funds:

    Financial Goal

    Analyze your financial goals before making an investment decision. Choose funds that help you meet the end goals. An important point to note is that you must not park your emergency funds in Low duration mutual fund schemes.

    Returns

    Low duration mutual funds have the potential to perform efficiently over a period of 6 months to 1 year. You must analyze the performance of your investments over this duration.

    Investment Horizon

    You must invest in short-term funds if you have a minimum investment horizon of 3 months. However, you can earn better returns over a longer duration

    Risk Tolerance

    Low duration mutual funds involve moderate risks and are not entirely risk-free. You must keep track of the degree of risk you are willing to take. Check the time horizon of your fund to evaluate an increase in its interest rate risk.

    Fund Portfolio & Management

    Conduct thorough research about the Fund House and Fund Manager before investing. It assures you that your funds are in safe hands

    Expense Ratio and other costs

    The fund house charges an annual amount for the management of your portfolio. This is called the Expense Ratio. This amount is calculated as per norms of the Securities and Exchange Board of India (SEBI). A fund house can charge a maximum 1.05% expense ratio for managing Low term fund schemes. It is recommended to track the expense ratio involved with your investment to avoid paying excess charges.

    Tax Treatment for Low Duration funds

    Short-term Capital Gains (STCG) on Low term funds are taxable on the basis of the income slab of the investor. No tax is applicable on the dividend earned by the investor. But you will be liable for a 20% tax after the benefit of indexation in the case of Long-Term Capital Gains (LTCG). The rate of tax on capital gains depends on the duration for which the units were held.

    Summary

    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.

    Explore Funds by Category

    Index FundsSmall Cap Funds
    Equity FundsDynamic Asset Allocation Funds
    Liquid FundsShort Term Funds
    Large Cap FundsRetirement Funds
    Debt FundsDiversified Funds
    Tax Saving FundsHybrid Funds
    Mid Cap FundsArbitrage Funds
    Corporate Bond FundsMoney Market Funds
    Childrens FundsGilt Funds
    Overnight FundsInternational Funds
    Ultra Short FundsBanking and PSU Funds
    Credit Risk FundsMulti Asset Allocation Funds
    Equity Savings FundsDynamic Bond Funds
    Low Duration FundsSolution Oriented Funds
    Long Duration FundsMedium Term Funds
    filter-btn
    Add Filter