Long Duration Mutual Funds

Long duration mutual funds fall under the debt mutual fund category, which makes investment in bonds and government securities with relatively longer maturity periods. These schemes aim to cater to those investors who are ready to invest their money in the market for several years and gain from variations in the interest rates.

What are Long Duration Mutual Funds?

Long Duration Mutual Funds are considered as debt funds where investments are made in fixed income securities having a duration of over 7 years. The primary constituents of these schemes include government securities, corporate bonds, and other debt instruments having long durations.

Since the value of long-term bonds is more sensitive to interest rate movements, these funds tend to perform well when interest rates fall. They are suitable for investors with a long investment horizon and a moderate to high risk appetite.

Features of Long Duration Mutual Funds

• Long-Term Bond Portfolio: Focuses mainly on government and corporate bonds with a duration period of more than seven years.
• Opportunity in Interest Rates: These funds can earn higher yields in times of falling interest rates in the market.
• Diversified Portfolio: Helps you diversify your portfolio by investing in quality debt securities.
• Flexibility in Investments: Allows investments through either SIP or lump sum investments depending on your investment requirements.

How to Invest in Long Duration Mutual Funds?

You can invest in long duration mutual funds by following simple process:

Step 1: Choose investment mode. You can invest through:

• AMC websites
• Online investment platforms provided by stockbrokers
• Mutual fund distributors

Step 2: Choose a suitable long duration mutual fund.

Step 3: Choose between Systematic Investment Plan (SIP) and Lump sum based on your goal and make investment.

Step 4: Make payment through UPI, netbanking or other available methods.

Why to Invest in Long Duration Mutual Funds?

• High Return Prospects: Provides an opportunity to make higher gains in times when interest rates are declining.
• Building Wealth Over Time: Aids in creating wealth slowly through investments in debt instruments for a longer period of time.
• Balanced Investment Portfolio: Aids in balancing your investment portfolio by giving you access to fixed income instruments.
• Suitable for Long-Term Objectives: These mutual funds are ideal for different financial goals like retirement planning, children education, etc.

Taxation of Long Duration Mutual Funds

• Taxation of Fresh Investments (Onwards from April 1, 2023): The entire capital gain by selling long duration funds, irrespective of the holding period, would be short-term capital gain. This gain would be fully added to the individual's income and would be liable to Income Tax at the appropriate slab rate. There is no option for indexation.
• Taxes on Legacy Investments (Pre-April 1, 2023): The units held for or less than 24 months, then taxes will be applied according to the investor's individual income tax slab. However, for legacy units held by an individual for a period above 24 months, they will be considered LTCG and subject to a flat tax rate of 12.5%, with no indexation.