Top Medium Duration Mutual Funds
Debt presents various options for conservative investors. SEBI has classified debt funds into 16 categories, simplifying the selection process for investors. Investment duration significantly impacts returns in debt funds. For optimal results, investors must align their investment horizon with the maturity of the debt fund. Let’s delve into what medium-duration debt funds offer. Medium-duration funds, lending to reputable companies for 3 or more years, expose investors to fluctuations in interest rates influenced by economic cycles.
Top 10 Medium Duration Funds in 2025
Here are the top 10 medium duration funds sorted according to their 5Y CAGR:
| Fund Name | AUM (in Cr.) | CAGR 3Y (%) | Expense Ratio (%) | CAGR 5Y (%) |
|---|---|---|---|---|
| Aditya Birla SL Medium Term Plan | 1,981.28 | 14.63 | 0.85 | 12.04 |
| Axis Strategic Bond Fund | 1,938.12 | 7.29 | 0.45 | 7.78 |
| ICICI Pru Medium Term Bond Fund | 5,928.46 | 7.10 | 0.74 | 7.70 |
| SBI Magnum Medium Duration Fund | 6,660.55 | 6.79 | 0.69 | 7.46 |
| UTI Medium to Long Duration Fund | 314.19 | 8.60 | 1.24 | 7.40 |
| SBI Magnum Income Fund | 1,808.18 | 6.79 | 0.78 | 7.32 |
| Kotak Medium Term Fund | 1,828.07 | 7.16 | 0.67 | 7.32 |
| Kotak Bond Fund | 2,033.82 | 6.67 | 0.69 | 7.29 |
| HDFC Medium Term Debt Fund | 4,016.39 | 6.61 | 0.65 | 7.28 |
| HSBC Medium Duration Fund | 841.36 | 6.70 | 0.4 | 7.23 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
Note: The data on the list is from January 2nd, 2025. However, for real-time updates on stock prices and market trends, visit the smallcase stocks collection today!
Overview of the Medium Duration Funds in India 2025
Aditya Birla SL Medium Term Plan
Managed by Aditya Birla Sun Life AMC, a joint venture between the Aditya Birla Group and Sun Life Financial Inc., this fund predominantly invests in debt securities with medium-term maturity to generate regular income and capital appreciation. The fund comes with an expense ratio of 0.85%, an exit load of 2.00%, and a Sharpe ratio of 3.21, making it a balanced option for medium-term investments.
Axis Strategic Bond Fund
Managed by Axis AMC, a joint venture of Axis Bank (holding 74.99%) and Schroder Singapore Holdings (holding 24%), this fund focuses on generating optimal returns in the medium term while maintaining liquidity through investments in debt and money market instruments. The fund boasts a low expense ratio of 0.45%, an exit load of 1.00%, and a high Sharpe ratio of 5.39, highlighting its efficiency and potential for risk-adjusted returns.
ICICI Prudential Medium Term Bond Fund
Operated by ICICI Prudential AMC, a collaboration between ICICI Bank and UK-based Prudential Plc, this fund strikes a balance between yield, safety, and liquidity. It achieves income generation through a diversified portfolio of debt and money market instruments. The fund offers an expense ratio of 0.74%, an exit load of 1.00%, and a Sharpe ratio of 5.13, indicating strong risk-adjusted performance.
SBI Magnum Medium Duration Fund
SBI Funds Management Ltd., a joint venture of SBI and AMUNDI (France), leverages over 30 years of fund management expertise to deliver value to investors. This fund aims to provide attractive returns with moderate liquidity through investments in debt and money market instruments, maintaining a Macaulay duration of 3–4 years. It features an expense ratio of 0.69%, an exit load of 1.00%, and a Sharpe ratio of 4.93, making it suitable for risk-conscious investors seeking steady returns.
UTI Medium to Long Duration Fund
UTI AMC, backed by SBI, LIC, Bank of Baroda, and Punjab National Bank, aims to deliver returns through investments in medium- to long-term debt instruments. Despite a relatively higher expense ratio of 1.24%, the fund caters to investors willing to accept an exit load of 3.00%. It has a Sharpe ratio of 2.65, reflecting moderate risk-adjusted returns suitable for long-term horizons.
How do Medium Duration Funds Work?
Medium duration funds invest in debt instruments with maturities typically three to four years. This strategic duration helps manage interest rate risk, as medium-term securities are less affected by interest rate fluctuations than longer-term bonds.
These funds aim to optimise returns by selecting a mix of government and corporate debt securities managed actively by portfolio managers. Holdings are adjusted based on market conditions and interest rate forecasts to maximise returns and minimise risk.
Features of Medium Duration Funds
Medium duration debt funds offer a balanced investment option with specific characteristics:
- Maturity Duration: Typically ranging from 3 to 4 years, providing a balanced risk-return profile between short and long-term investments.
- Enhanced Liquidity: Compared to long-term funds, these offer greater liquidity, allowing investors quicker access to their cash when needed.
- Risk Diversification: These funds spread risk by investing in various debt instruments, minimising the impact of individual defaults or market fluctuations.
- Tax Efficiency: Capital gains from holding medium duration debt funds for over three years are taxed at a lower rate, making them advantageous for long-term investors.
Factors to Consider While Investing in Medium Duration Funds
Medium Duration Mutual Funds play a pivotal role in investors’ portfolios by offering a balanced approach to financial goals. They aim to generate income through interest and dividend payouts, appealing to those seeking cash flow. Additionally, these funds target moderate capital appreciation, providing growth potential without the aggressiveness of long-term options.
- Income Generation: Medium duration funds deliver a reliable source of income to investors through interest and dividend payouts.
- Moderate Capital Appreciation: Unlike long-term funds, medium duration funds offer a balanced potential for capital growth.
- Lower Interest Rate Risk: These funds are designed to have lower sensitivity to interest rate fluctuations, providing stability in volatile market conditions.
- Portfolio Diversification: They play a crucial role in diversifying portfolios by spreading risk across various fixed-income instruments, enhancing overall stability.
- Balanced Risk-Reward Profile: Medium to long duration funds aim to strike a harmonious balance between risk and reward, offering investors moderate risk with growth potential.
Who Should Invest in Medium Duration Funds?
These funds carry inherent risks, including interest and credit risks common to all mutual funds. However, they typically entail a moderate level of risk, appealing to investors comfortable with medium-risk exposure.
The funds are suitable for those seeking medium-term investments (3 to 5 years) and offer potential benefits. While returns are not assured, they tend to be less influenced by market fluctuations and offer predictable returns within this timeframe.
How to Choose the Best Mid Duration Funds?
When selecting the best medium duration funds, consider several factors:
- Performance History: Examine the fund’s past performance over various market cycles to gauge its consistency and ability to deliver returns.
- Fund Manager Expertise: Research the fund manager’s experience, investment strategy, and track record in managing medium duration funds.
- Expense Ratio: Look for funds with lower expense ratios, as higher expenses can eat into your returns over time.
- Portfolio Composition: Analyze the fund’s portfolio holdings to ensure they align with your investment goals and risk tolerance.
- Credit Quality: Assess the credit quality of the bonds held in the fund’s portfolio to understand the level of risk involved.
- Duration Risk: Understand the fund’s average duration, as this determines its sensitivity to interest rate changes.
- Liquidity: Consider the liquidity of the fund’s underlying assets. As this can impact its ability to meet redemption requests during market downturns.
How to Invest in Medium Duration Funds?
When investing in medium duration funds, start by researching different fund options available in the market. Assess their historical performance, expense ratios, and investment objectives to ensure they align with your financial goals. Next, consider the fund manager’s track record and expertise in managing medium duration funds. Once you’ve selected a fund, carefully review its investment strategy and portfolio holdings to understand its risk profile and potential returns. Finally, monitor your investment periodically to ensure it continues to meet your investment objectives and make adjustments as necessary.
How do Medium Duration Funds Generate Returns?
Medium duration funds generate returns primarily through investing in a diversified portfolio of fixed income securities such as government bonds, corporate bonds, and money market instruments. These funds aim to capitalise on interest rate movements and credit spreads to generate income for investors. Additionally, fund managers may actively manage the portfolio duration to take advantage of changes in interest rates, aiming to maximise returns while managing risk. The returns generated by medium duration funds are influenced by factors such as prevailing interest rates, the credit quality of the underlying securities, and overall market conditions. By carefully selecting securities and actively managing the portfolio, medium duration funds seek to provide investors with stable returns over the medium term.
Benefits of Investing in Medium Duration Funds
Medium-duration mutual funds balance risk and return by investing in medium-term debt instruments. They offer better returns than short-term funds and maintain lower risk than long-term funds.
Key advantages include:
- Moderate sensitivity to interest rate changes, providing stability in various market conditions.
- Better liquidity than long-term debt funds, suitable for investors with intermediate investment horizons.
- Diversification through investment in various debt instruments enhances portfolio stability.
- Accessibility to individual investors, catering to a broad range of investment strategies.
- Professional management by fund managers to mitigate market changes and interest rate risks.
For further insights, explore related stock market articles below.
Risks of Investing in Medium Duration Funds
Investing in medium duration funds carries several risks including:
- Lower returns compared to equity funds necessitate careful selection of funds with lower costs. This includes expense ratios, exit loads, and fund management expenses, all of which can erode potential returns.
- Despite misconceptions about their safety, mid duration funds are still subject to market fluctuations like any other mutual fund, albeit to a lesser extent.
- Optimal returns are typically realised over a mid-term horizon, so premature selling may result in a decline in the value of your units.
Taxability of Medium Duration Funds
The taxation of debt mutual funds depends on how long the investor holds the fund units. If an investor redeems units within three years, the investor incurs Short Term Capital Gains Tax (STCG) based on their income tax bracket. On the other hand, withdrawing investment, including capital gains, after three years subjects the investor to a Long Term Capital Gains Tax.
| Capital Gains Tax | Description |
| Short-Term Capital Gains (STCG) | If you sell your debt fund units within three years (36 months), the tax will be as per your income tax slab. |
| Long-Term Capital Gains (LTCG) | For debt funds held for over three years (36 months), the tax rate is now a flat 12.5% without indexation benefits. |
The removal of indexation benefits for debt funds means the entire gain from selling a debt fund after three years (36 months) will be taxable at a flat rate of 12.5%.
To Wrap It Up…
In conclusion, understanding medium duration funds provides investors with a valuable tool for diversifying their portfolios and managing risk. These funds offer a balance between short-term and long-term investments, making them suitable for investors seeking moderate returns with a relatively lower level of risk. By incorporating medium-duration funds into their investment strategy, investors can potentially enhance their overall portfolio performance while maintaining a stable income stream.
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Frequently Asked Questions (FAQs) on Medium Duration Funds
Medium-duration mutual funds invest in debt securities with maturities ranging from three to four years, aiming to balance risk and return.
A medium-term fund typically invests in a blend of government securities and corporate bonds, each with an approximate three-year maturity.
Medium duration funds can typically have low volatility, low risk, and stable returns.
Medium duration funds focus on bonds and financial instruments maturing in three to seven years, ensuring a consistent income flow through interest and dividends. Additionally, these funds allocate across various fixed-income securities such as government and corporate bonds, diversifying risk and minimising the effect of underperforming assets.
The taxation of debt mutual funds depends on how long the investor holds the fund units. If units are redeemed within three years, the investor incurs Short Term Capital Gains Tax (STCG) based on their income tax bracket. On the other hand, withdrawing investment, including capital gains, after three years subjects the investor to a 20% Long Term Capital Gains Tax, with the benefit of indexation. Indexation adjusts long-term gains for inflation, lowering the tax burden.
