Best Medium Duration Mutual Funds in India: A Complete Guide
17 Feb 2025 7 mins Mutual Funds
When it comes to investing in mutual funds, choosing the right category is crucial to achieving your financial goals. If you’re looking for a balance between risk and returns, medium duration mutual funds could be the perfect fit for your portfolio. In this guide, we’ll explore everything you need to know about medium duration funds, including their benefits, how they work, and the best medium duration mutual funds in India.
What are Medium Duration Mutual Funds?
Medium duration mutual funds are a type of debt mutual fund that invests in fixed-income securities with a maturity period of 3 to 4 years. These funds are ideal for investors who want to earn higher returns than short-term debt funds while managing interest rate risk.
Medium duration funds primarily invest in instruments like government bonds, corporate bonds, and money market instruments. They offer a balanced approach to investing, making them suitable for investors with a moderate risk appetite.
Why Invest in Medium Duration Mutual Funds?
Investing in medium duration mutual funds offers several advantages:
1. Balanced Risk and Returns
These funds provide a balance between the stability of short-term funds and the higher returns of long-term funds.
2. Moderate Interest Rate Risk
With a maturity period of 3 to 4 years, medium duration funds are less sensitive to interest rate fluctuations compared to long-duration funds.
3. Steady Returns
Medium duration funds offer relatively steady returns, making them a good option for risk-averse investors.
4. Diversification
These funds invest in a mix of high-quality debt instruments, providing diversification and reducing risk.
5. Tax Efficiency
Debt funds like medium duration funds benefit from indexation, which reduces the tax liability on long-term capital gains.
How to Choose the Best Medium Duration Mutual Funds in India
When selecting the best medium duration mutual funds, consider the following factors:
1. Fund Performance
Look for funds with a consistent track record of delivering stable returns over the years.
2. Expense Ratio
Choose funds with a lower expense ratio, as higher fees can eat into your returns.
3. Credit Quality
Check the credit rating of the securities in the fund’s portfolio. Funds with higher-rated securities are less risky.
4. Fund Manager’s Expertise
A skilled fund manager can make a significant difference in the fund’s performance.
5. Investment Objective
Ensure the fund’s investment objective aligns with your financial goals.
Top 5 Best Medium Duration Mutual Funds in India (2023)
Here’s a list of some of the best medium duration mutual funds in India based on their performance, consistency, and reliability:
1. HDFC Medium Term Debt Fund
Expense Ratio: 0.60%
Average Returns (3 Years): 8.2%
Why Invest: Consistent performance and a diversified portfolio of high-quality debt instruments.
2. ICICI Prudential Medium Term Bond Fund
Expense Ratio: 0.55%
Average Returns (3 Years): 8.0%
Why Invest: Strong track record and a focus on high-rated securities.
3. SBI Magnum Medium Duration Fund
Expense Ratio: 0.65%
Average Returns (3 Years): 7.8%
Why Invest: Low expense ratio and a well-managed portfolio.
4. Axis Strategic Bond Fund
Expense Ratio: 0.50%
Average Returns (3 Years): 8.1%
Why Invest: Excellent fund management and a focus on risk-adjusted returns.
5. Kotak Medium Term Fund
Expense Ratio: 0.70%
Average Returns (3 Years): 7.9%
Why Invest: Stable returns and a diversified portfolio.
Advantages of Investing in Medium Duration Mutual Funds
1. Balanced Approach
Medium duration funds offer a balanced approach to investing, making them suitable for investors with a moderate risk appetite.
2. Moderate Investment Horizon
These funds are ideal for investors with a medium-term investment horizon (3 to 5 years).
3. Better Returns Than Short-Term Funds
Medium duration funds typically offer higher returns than short-term debt funds.
4. Flexibility
You can invest in medium duration funds through SIPs or lump sums, depending on your financial goals.
5. Ideal for Parked Funds
If you have idle funds that you don’t need immediately, medium duration funds can help you earn better returns without taking on too much risk.
Who Should Invest in Medium Duration Mutual Funds?
Medium duration mutual funds are suitable for:
Moderate Risk Investors: Those who want a balance between risk and returns.
Medium-Term Investors: Individuals with a time horizon of 3 to 5 years.
Risk-Averse Investors: Those looking to diversify their portfolio with debt instruments.
Parked Funds: Investors who want to earn better returns on idle funds.
How to Invest in Medium Duration Mutual Funds
Investing in medium duration mutual funds is simple and can be done in a few easy steps:
Choose a Fund: Select a medium duration fund based on your financial goals and risk appetite.
Complete KYC: Ensure your KYC is completed before investing.
Invest Online or Offline: You can invest through the fund house’s website, a mutual fund distributor, or an online platform.
Monitor Your Investment: Keep track of your investment and make adjustments as needed.
FAQs About Medium Duration Mutual Funds
1. What are medium duration mutual funds?
Medium duration mutual funds are debt funds that invest in fixed-income securities with a maturity period of 3 to 4 years.
2. Are medium duration funds safe?
Yes, medium duration funds are relatively safe as they invest in high-quality debt instruments with moderate maturities.
3. What is the average return of medium duration funds?
The average return of medium duration funds ranges between 7% to 9% per annum, depending on market conditions.
4. Can I invest in medium duration funds for the long term?
While medium duration funds are ideal for medium-term goals, they can also be used for long-term investments if you want balanced returns with moderate risk.
5. How are medium duration funds taxed?
Short-term capital gains (investments held for less than 3 years) are taxed as per your income tax slab. Long-term capital gains (investments held for more than 3 years) are taxed at 20% with indexation.
6. What is the difference between medium duration and long-duration funds?
Medium duration funds invest in securities with a maturity period of 3 to 4 years, while long-duration funds invest in securities with a maturity period of more than 7 years.
7. Can I invest in medium duration funds through SIP?
Yes, you can invest in medium duration funds through SIPs or lump sums.
8. What is the minimum investment amount for medium duration funds?
The minimum investment amount varies across funds but typically starts at ₹500 or ₹1,000.
9. How do I choose the best medium duration fund?
Consider factors like fund performance, expense ratio, credit quality, and the fund manager’s expertise when choosing a medium duration fund.
10. Are medium duration funds better than fixed deposits?
Medium duration funds may offer higher returns than fixed deposits, but they also carry slightly higher risk.
Conclusion
Medium duration mutual funds are an excellent investment option for those seeking balanced returns with moderate risk. Whether you’re a moderate-risk investor or someone looking to park idle funds, these funds can help you achieve your financial goals.
By choosing the best medium duration mutual funds in India, you can enjoy the benefits of diversification, steady returns, and tax efficiency. Start your investment journey today and take a step towards financial security!
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Author - Abhishek Sonawane
Abhishek Sonawane, an MBA graduate from the prestigious Indian Institute of Management Visakhapatnam (IIMV), brings over ten years of experience in the finance domain. His extensive background includes various roles in financial management and strategy, providing him with a comprehensive understanding of the financial landscape. Abhishek’s expertise and dedication to financial education make him an authoritative voice in personal finance, helping readers make informed financial decisions.