Medium Duration Mutual Funds

Are you an investor looking to park your hard earned money into an instrument that offers both stability and potential returns? Medium Duration Funds can be your first choice as these funds have better potential for returns than traditional savings products. However, these funds come with a moderate risk.

What are Medium Duration Funds?

Medium Duration Funds are debt mutual funds that make investments mostly in fixed income securities like government bonds, corporate bonds, and money market instruments. The average period of the portfolio held by these funds is around 3-4 years, which makes them suitable for medium-term investments.

As the fund manager keeps changing the portfolio in accordance with interest rate changes and market conditions, these funds provide stable returns to investors over time.

Features of Medium Duration Funds

• Low Risk: Medium Duration Funds are generally of low risk nature as compared to equity funds. These funds provide better returns as compared to fixed deposits.
• Medium-Term Investment Period: These funds are suitable for individuals looking to stay invested for about 3-5 years.
• Portfolio of Various Debentures: Their investments comprise different debentures that help mitigate risks of concentration.
• Professional Management: Professional fund managers manage the fund's portfolio in order to get maximum profits from the investment.

How to Invest in Medium Duration Funds?

You can invest in medium duration 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 suitable medium duration 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 Invest in Medium Duration Funds?

• Higher Yield Potential: There is a possibility that these funds have higher yield potential than some conventional savings accounts and certain debt-oriented products over a medium time horizon.
• Interest Rate Advantages: These funds have the advantage of favorable interest rates, which provide an opportunity to increase the value of capital invested.
• Diversification of Portfolio: They are helpful in providing diversification in one’s portfolio by investing in debt instruments.
• Good for Medium Term Investments: Useful for investments such as higher education purposes, renovation of house, vacation purposes, etc.

Taxation of Medium Duration Funds

• Taxation of Fresh Investments (Onwards from April 1, 2023): The entire capital gain by selling medium 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): Medium Duration Funds 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.