Long Duration Mutual Funds

Long duration debt mutual funds are a type of mutual fund that primarily invests in fixed-income securities with longer-term maturities. These funds typically hold bonds, debentures, government securities, and other debt instruments with longer durations, typically exceeding seven years. Long duration debt funds are sensitive to changes in interest rates, and their portfolio values tend to fluctuate more significantly in response to interest rate movements compared to funds with shorter durations.

Best Long Duration Mutual Funds to Invest Today


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How Does Long Duration Mutual Funds Work?

Long duration debt mutual funds work by pooling money from investors and investing it primarily in fixed-income securities with longer maturities. The fund manager selects securities with the aim of maximizing returns while managing interest rate risk. The fund earns income from interest payments on the underlying securities, which is passed on to investors in the form of dividends or reinvested to increase the fund's NAV. Investors can buy and sell shares of the mutual fund at its NAV, which is calculated based on the value of the fund's underlying assets.

What are the Advantages of investing in Long Duration Mutual Funds?

  • Higher Yield Potential

    Long duration debt mutual funds typically offer higher yields compared to funds with shorter durations, as longer-term bonds tend to have higher coupon rates to compensate investors for the increased risk and uncertainty associated with longer maturities.

  • Portfolio Diversification

    Investing in long duration debt mutual funds can help diversify a portfolio by adding exposure to fixed-income securities with longer maturities. This can reduce overall portfolio risk and volatility, especially for investors heavily concentrated in equities or shorter-term fixed-income investments.

  • Interest Rate Hedge

    Long duration debt mutual funds can serve as a hedge against rising interest rates. When interest rates rise, the value of existing bonds with lower coupon rates tends to decline. However, long duration bonds may experience smaller price declines compared to shorter duration bonds, potentially mitigating losses in a rising rate environment.

  • Potential Capital Appreciation

    Long duration debt mutual funds may experience capital appreciation when interest rates decline. As bond prices rise in response to falling interest rates, the NAV of long duration funds increases, leading to capital gains for investors who sell their shares.

  • Income Generation

    Long duration debt mutual funds provide regular income through interest payments from the underlying fixed-income securities. This can be particularly attractive for investors seeking a steady stream of income to meet their cash flow needs or supplement other sources of income.

Limitations of Investing in Long Duration Funds

  • Interest Rate Risk

    Long duration debt mutual funds are highly sensitive to changes in interest rates. When interest rates rise, bond prices typically fall, leading to potential losses for investors holding long duration bonds. Conversely, when interest rates decline, bond prices rise, resulting in capital appreciation for investors.

  • Volatility

    Long duration debt mutual funds can experience significant price fluctuations due to changes in interest rates and investor sentiment. The NAV of these funds may be more volatile compared to funds with shorter durations, leading to potential short-term losses or gains for investors.

  • Credit Risk

    Long duration debt mutual funds may invest in lower-rated or unrated bonds, which are subject to credit risk. These bonds carry a higher risk of default or downgrade, which can lead to losses for investors if the issuer fails to meet its debt obligations.

  • Liquidity Risk

    Some long duration bonds may have limited liquidity, making it challenging to buy or sell them at desired prices, especially during periods of market stress or volatility. This liquidity risk can impact the fund's ability to meet redemption requests and may result in wider bid-ask spreads and price discounts for investors.

Points to consider before investing in Long Duration mutual funds

Before investing in a Long Duration mutual fund, it's crucial to consider several key points to make informed investment decisions and manage risks effectively. Here are some points to consider:

  • Investment Objectives

    Determine whether investing in long duration debt mutual funds aligns with your investment objectives, risk tolerance, and time horizon. Consider whether you seek income generation, capital appreciation, or portfolio diversification through exposure to longer-term fixed-income securities.

  • Interest Rate Outlook

    Assess the current interest rate environment and outlook for future interest rate movements. Consider how changes in interest rates may impact the performance of long duration debt mutual funds and whether you are comfortable with the associated interest rate risk.

  • Credit Quality

    Evaluate the credit quality of the underlying securities held by the mutual fund. Understand the credit ratings of the bonds in the portfolio and assess the fund's exposure to lower-rated or unrated bonds. Consider whether you are willing to accept the credit risk associated with investing in these securities.

  • Fund Manager Expertise

    Assess the expertise and track record of the fund manager(s) responsible for managing the long duration debt mutual fund. Consider factors such as their experience in fixed-income investing, investment philosophy, and past performance managing similar funds.

  • Expense Ratios and Fees

    Review the expense ratios and fees associated with investing in long duration debt mutual funds. Compare these costs with other similar funds and consider how they may impact your investment returns over time.

How to start investing in Long Duration Funds with INDmoney?

Now that you have understood what is Long Duration mutual fund, you need to know how easily you can start your investment with INDmoney. Just follow these simple steps given below, to start your mutual fund investment journey with us.

  • Step 1

    Download the INDmoney app and create your free investment account by completing your KYC ( Know Your Customer).

  • Step 2

    Once your Free investment account is ready, you can either search for a  Long Duration Mutual Fund or go to the mutual fund section and tap on Long Duration mutual funds.

  • Step 3

    Choose a Long Duration Mutual Fund by looking at aspects like past returns, volatility, downside capture ratio, AUM, Expense ratios and underlying stocks and sectors.

  • Step 4

    You can choose to set up SIP in Long Duration mutual funds or even invest as lumpSum. Once you are on the individual Long Duration mutual fund page click from the bottom “One-time” for lump sum investment or “SIP” for systematic investment plan. 

  • Step 5

    Choose the amount that you want to invest as SIP or LumpSum.

  • Step 6

    Set up payments. If you choose to set up SIP in Long Duration mutual funds,  you can do a free automatic pay set up via bank mandate or UPI. If you choose to invest in lumpsum (one-time) then you can pay via UPI, netbanking, NEFT or RTGS.


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