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Best Medium to Long Duration Funds

Medium to Long Duration Funds invest in the debt and money market instruments with duration ranging between 4 to 7 years. These funds are volatile during fluctuations in interest rates and suitable for medium-term financial goals.

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Top Best Medium to Long Duration Funds for long-term growth

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List of Medium To Long Duration Mutual Funds in 2022

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Fund name
AUM
1Y CAGR
3Y CAGR
Till Date CAGR
Aditya_Birla_Fav_icon-logo
Aditya Birla Sun Life Income Fund Discipline Advantage Plan (G)

1548.872 Cr

0.9%

6.2%

7.3%

icici-prudential-logo
ICICI Prudential Bond Fund (G)

2438.73 Cr

1.4%

6.1%

8.7%

sbi-logo
SBI Magnum Income Fund (G)

1542.807 Cr

1.5%

6.8%

7.6%

icici-prudential-logo
ICICI Prudential Bond Fund Institutional (G)

2438.73 Cr

11.6%

7.6%

8.2%

Aditya_Birla_Fav_icon-logo
Aditya Birla Sun Life Income Fund (G)

1548.872 Cr

0.9%

6.2%

9%

reliance-nippon-life-logo
Nippon India Income Fund Plan (G)

221.52 Cr

0.7%

5%

8.4%

idfc-logo
IDFC Bond Fund Income Plan (G)

534.474 Cr

-0.8%

4.6%

7.9%

idfc-logo
IDFC Bond Fund Income Plan (G)

534.474 Cr

4%

7.8%

8.6%

kotak-mahindra-logo
Kotak Bond fund (G)

1569.955 Cr

0.3%

5.6%

8.4%

hdfc-logo
HDFC Income Fund (G)

528.958 Cr

-0.4%

4.3%

7.3%

tata-logo
Tata Income Fund Income (G)

51.331 Cr

0.2%

5.3%

7.8%

hsbc-global-logo
HSBC Debt Fund (G)

40.428 Cr

-1.2%

3.7%

6.5%

uti-logo
UTI Bond Fund (G)

301.144 Cr

12.1%

6.2%

7.6%

lic-logo
LIC MF Bond Fund (G)

129.597 Cr

1.4%

4.6%

7.8%

canara-robeco-logo
Canara Robeco Income Fund (G)

127.24 Cr

-0.2%

4.6%

8%

jm-financial-logo
JM Medium to Long Dur Fund (G)

21.09 Cr

-1.1%

2.3%

6.1%

uti-logo
UTI Bond Fund Segregated 17022020 (G)

16.779 Cr

334.6%

-

95.7%

Aditya_Birla_Fav_icon-logo
Aditya Birla Sun Life Nifty SDL Apr 2027 Index Fund (G)

4069.838 Cr

-

-

0.4%

edelweiss-logo
Edelweiss NIFTY PSU Bond Plus SDL Apr 2027 50 50 Index Fund (G)

2590.178 Cr

-

-

1%

edelweiss-logo
BHARAT Bond FOF April 2025 fund (G)

4031.963 Cr

1.2%

-

3.6%

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Investing in the right mutual funds is challenging. Mutual fund investments are useful for investors with a clear investment goal and who have a significant risk appetite. Medium to long duration funds provides investors an opportunity to generate good returns with a moderate degree of liquidity. These schemes invest their corpus in a range of debt and money market securities.

Recommended: To check best mutual funds to invest

Top 5 Popular Mutual Funds for Medium to Long Duration Investment

Fund NameTill Date CAGRExpense Ratio
ICICI Prudential Bond Fund (G)8.7%1.18%
SBI Magnum Income Fund (G)7.6%1.46%
Kotak Bond fund (G)8.4%1.79%
HDFC Income Fund (G)7.3%2.06%
Nippon India Income Fund Plan (G)8.4%1.68%

What is Medium to Long Duration Mutual Funds?

Medium to Long Duration Funds invest in the debt and money market instruments. The Macaulay duration of these investments is between 4 to 7 years. These funds are highly sensitive to changes in interest rates. The bond price falls with a rise in interest and rises when the interest rate falls. Interest rate fluctuations affect debt funds as it disturbs the prices of the underlying bonds in the fund portfolio.

Debt funds are classified on the basis of their tenure. Following are the maturity periods of Debt funds:

  • Low duration
  • Short duration
  • Medium duration
  • Medium-to-long duration
  • Long duration funds.

You must pick the right duration of the fund to get the best returns on your investment. An ideal duration is one which matches your financial goals. Besides, the tenure of debt funds you must also review the risk involved. As debt funds are prone to risk, so is your investment in medium to long duration funds. As well as, if you are okay with exposing your portfolio to some level of risk, you can invest in these schemes.

Medium to long duration funds seeks to generate higher returns in comparison to medium and low duration funds. These funds are volatile during fluctuations in interest rates. Consequently, their returns are better in a falling interest rate scenario.

Advantages of Investing in Medium to Long Duration Mutual Funds

The following are benefits of investing in Medium to Long Duration mutual funds:

  • These funds allow investors to diversify their portfolios.
  • You can enjoy a higher return on your investment in comparison to bank fixed deposits of a similar term.
  • Investors in the higher income tax bracket can enjoy a tax-efficient return.

Although Medium to Long Duration Mutual Funds generate higher returns they also have some disadvantages.

Disadvantages

  • They are suitable for investors having medium to long term perspective (4 to 7 years)
  • Generally, these funds are prone to interest rate fluctuations
  • They are not completely risk-free and are advisable for investors with decent risk-taking ability.
  • Capital Gains Tax is applicable on short as well as long-term investments in medium to long duration funds.

Who should Invest in Medium to Long Duration Mutual Funds

Investors with a medium to long term investment objective can invest in these funds. You must have an investment horizon of four to seven years. In such a scenario you can expect a high return in comparison to both low duration and medium duration funds. Your investment in medium to long duration funds will help you achieve medium-term financial goals.

Medium to long duration funds also help you diversify your portfolio while protecting it from stock market volatility. You earn returns from investment in this scheme through a combination of interest earnings and capital gains.

You can enjoy higher returns by investing in medium to long duration funds than putting your money in fixed deposits of similar tenure. Investors in the higher income tax brackets can avail tax-efficient returns from these schemes. Medium to long duration funds are also recommended for investors expecting higher returns in a falling interest rate scenario.

These funds are also advisable to risk-averse investors looking to park their money. Considering the majority of investments made by these funds are in high credit-rated debt securities the associated risk is low. Consequently, you can earn moderate returns from them while keeping your exposure to risk minimal. 

The volatility of debt mutual funds is relatively less in comparison to equity mutual funds. Its returns are not driven by market fluctuations. It depends on the credit risk of the underlying debt securities. If you cannot tolerate volatility and want to earn reasonably good returns then you can opt for medium to long duration funds.

Things To Consider When Investing in Medium to Long Duration Mutual Funds

  • Investment Objectives: You can invest in medium to long duration funds by matching their duration with your financial goals. They are useful to achieve your medium-term goals like paying off a loan or renovating your house.
  • Time Horizon: You must invest in these funds for a longer tenure. A time horizon of four to seven years is ideal for good returns. Investors investing in medium to long term mutual funds for more than 5 years can expect to earn high returns. The reason for this is the tenure of debt instruments in which these schemes invest. The maturity period of their portfolio is usually more than 4 years. You must understand frequent outflows from any mutual fund affects its performance. Your return will be affected negatively if you withdraw from the fund before the maturity of debt securities.
  • Risk Profile: Medium to long duration funds are prone to interest rate risk as they invest in government bonds of a longer duration. The fund could lose value if the interest rates rise. The Macaulay duration of these schemes is four to seven years. They are affected by the fluctuations in the interest rate cycle due to a longer maturity period. However, as these funds invest a large portion of their corpus in government securities, the credit risk is lower.
  • Track Record: You must consider checking the fund portfolio for better clarity. Reviewing the track record of the fund house and fund manager is an essential step. Review these before investing in any debt fund.

Taxation

The medium to long term funds are subject to similar tax regulations as other debt funds. The tax is levied according to their holding period. Short-term capital gains (STCG) are applicable after a holding period below 36 months. The tax calculation will depend on your income tax slab.

Long-term capital gains (LTCG) are levied for a holding period of 36 months or more. The tax liability for these gains is 20% with the indexation benefit. The benefit of indexation allows you to adjust for inflation by raising the purchase price of your medium to long term funds.

Your dividend earnings from medium to long duration funds are a part of your taxable income. The tax payable on dividends will depend on your income tax slab. Although, dividends were tax-free in the hands of the investors before the Union Budget 2020. The dividend distribution tax (DDT) was earlier being paid by Mutual fund houses before distributing the dividends to the investors.

You can invest in debt funds to generate returns for a specific investment objective. Medium to long-duration funds provide good returns accompanied by some risk. You must consider a fund house that actively manages your investment and its underlying components.

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