How do Long Duration Mutual Funds work?

These funds aim to generate returns by investing in long-term government securities, corporate bonds, and other fixed-income instruments. The fund manager actively manages the portfolio to capitalise on interest rate movements. When interest rates fall, the value of the long-term bonds in the portfolio tends to rise, leading to capital gains.

Should Invest in Long Duration Mutual Funds?

Investing in long-duration mutual Funds can be a good strategy if you are looking for stable returns over a long period and have a low to moderate risk tolerance. They are particularly beneficial in a declining interest rate environment, but can be risky if rates are expected to rise.

How to choose the best Long Duration Mutual Fund for my portfolio?

To choose the best fund, consider your financial goals, risk appetite, the fund's expense ratio, its historical performance, and the credit quality of its underlying assets. Using a platform like INDmoney can help you compare these parameters across various funds easily.

What are the benefits of investing in a Long-duration Mutual Fund?

Capital Appreciation Potential

These funds offer the potential for capital growth over the long term, especially in a falling interest rate environment, as the value of their bond holdings increases.

High Liquidity

Unlike fixed deposits or other long-term locked-in investments, you can redeem your mutual fund units on any business day, providing easy access to your money when needed.

Regular Income Potential

Many long duration funds offer dividend options (now known as IDCW - Income Distribution cum Capital Withdrawal), providing a potential source of regular income for investors.

Difference between Long Duration, Short Duration and Liquid Funds

The key difference lies in the duration of the underlying securities. Liquid funds invest in instruments with a maturity of up to 91 days, making them very low risk. Short duration funds invest in securities with a Macaulay duration of 1-3 years, offering a balance of risk and return. Long-duration funds invest in securities with a duration of over 7 years, making them most sensitive to interest rate changes.

How much tax do I have to pay on Long-duration Mutual Funds?

As per current tax laws, capital gains from debt funds are added to your income and taxed at your applicable income tax slab rate, regardless of the holding period. TDS is not applicable on redemption for resident individuals.

Long Duration Mutual Funds vs. Other Categories

Compared to equity funds, long-duration funds are less volatile but typically offer lower long-term returns. Compared to other debt funds like liquid or short-duration funds, they carry higher interest rate risk but also have higher return potential, especially when rates are falling.

How is the AUM of Long Duration Mutual Funds Growing?

The Assets Under Management (AUM) for this category fluctuates based on investor sentiment and interest rate outlooks. A growing AUM often indicates increasing investor confidence in the long-term prospects of the economy and a favourable interest rate environment.

Stocks Added by Best Long Duration Mutual Funds

Long-duration funds do not invest in stocks. They invest in fixed-income securities like Government Bonds and Corporate Debentures. A better metric to track is the addition of new high-quality corporate or government bonds to their portfolios.

Top Exits from Long Duration Mutual Funds

Fund managers may exit certain bonds if their credit rating is downgraded, if they want to book profits, or to rebalance the portfolio's duration in response to changing interest rate forecasts.

Long Duration Funds' Sector allocation

The 'sector' allocation for debt funds refers to the type of issuer. This is typically dominated by government securities (Sovereign) and high-rated bonds from sectors like Financial Services, Power, and infrastructure.