Medium Duration Mutual Funds

Medium duration mutual funds are a type of debt 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 Medium Duration Mutual Funds to Invest Today


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How Does Medium Duration Mutual Funds Work?

Medium duration debt mutual funds work by pooling money from investors and investing it primarily in fixed-income securities with medium-term maturities. The fund manager selects securities with the aim of optimizing 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 Medium Duration Mutual Funds?

  • Yield Potential

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

  • Interest Rate Risk Management

    Medium duration debt funds seek to strike a balance between yield potential and interest rate risk. By investing in securities with moderate durations, these funds are less sensitive to interest rate fluctuations compared to longer duration funds, potentially reducing volatility in response to changes in interest rates.

  • Diversification

    Medium duration debt mutual funds provide diversification benefits by investing in a diversified portfolio of fixed-income securities with medium-term maturities. This diversification helps spread risk across different issuers, sectors, and credit qualities, reducing overall portfolio risk and volatility.

  • Stability

    Medium duration debt mutual funds offer relatively stable returns and lower volatility compared to equity investments. These funds are suitable for investors seeking steady income and capital preservation while minimizing exposure to interest rate risk and credit risk.

  • Income Generation

    Medium 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 Medium Duration Funds

  • Interest Rate Sensitivity

    While medium duration debt mutual funds are less sensitive to interest rate fluctuations compared to longer duration funds, they are still subject to interest rate risk. When interest rates rise, bond prices typically fall, leading to potential losses for investors holding medium duration bonds.

  • Credit Risk

    Medium 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.

  • Market Volatility

    Medium duration debt mutual funds can experience price fluctuations in response to changes in interest rates, credit spreads, and investor sentiment. While these funds are less volatile compared to equity investments, they may still experience short-term fluctuations in NAV.

Points to consider before investing in Medium Duration mutual funds

Before investing in a Medium 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 horizon

    These funds are suitable for investors with a time frame of 3-4 years. The returns are more stable than short-term debt funds but can fluctuate more than long-term debt funds if redeemed before maturity.

  • Interest rate risk

    Since medium duration funds invest in bonds with maturities of 3-4 years, they are more susceptible to interest rate changes compared to short-term debt funds. If interest rates rise, the value of the fund can go down.

  • Credit Quality

    Look at the credit quality of the bonds the fund invests in. Lower credit quality bonds offer higher potential returns but also carry a higher risk of default.

  • Investment goals

    Align your investment with your financial goals. Medium duration funds are suitable for goals like a child's education or a down payment on a car in 3-4 years.

  • Expense ratio

    Choose a fund with a lower expense ratio, which reduces the overall returns you earn.

How to start investing in Medium Duration Funds with INDmoney?

Now that you have understood what is Medium 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  Medium Duration Mutual Fund or go to the mutual fund section and tap on Medium Duration mutual funds.

  • Step 3

    Choose a Medium 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 Medium Duration mutual funds or even invest as lumpSum. Once you are on the individual Medium 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 Medium 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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