Medium To Long Duration Mutual Funds

Are you looking for an investment option that provides you with an opportunity to earn higher gains than the conventional investments without taking much risk? You may consider investing in Medium to Long Duration Mutual Funds, if you want to earn from changes in interest rates over medium to long-term investment horizons.

What are Medium to Long Duration Funds?

Medium to Long Duration Debt Mutual Funds are debt mutual funds whose portfolio includes various kinds of debt securities like bonds, government securities, and corporate debt instruments. The portfolio is managed in such a manner that its average duration remains medium to long in duration, usually 4 to 7 years on an average.

The value of these types of mutual funds depends upon interest rate trends. If the interest rate trends downward, then the values of the bonds already present will appreciate, and vice versa.

Such mutual funds are suitable for investors willing to remain invested for many years ahead and seeking an income-generating approach combined with capital appreciation.

Features of Medium to Long Duration Funds

• Investing in Quality Debt Instruments: This type of funds is predominantly invested in government securities, corporate bonds, treasury bills and other fixed income investments with medium to long-term durations.
• Benefits from Changing Interest Rates: Medium to Long Duration Funds can do well in a falling interest rates environment due to rising bond prices when interest rates decline.
• Professionally Managed Portfolio: The professional fund managers keep track of market conditions, interest rate movements and credit quality of bonds.
• Diversified: The portfolio comprises different debt instruments and different issuers.
• Medium to Long Term Investment Horizons: These types of funds have an investment horizon of 3 to 5 years or even more.

How to Invest in Medium to Long Duration Funds?

You can invest in medium to long 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 a suitable medium to long 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 to Invest in Medium to Long Duration Funds?

• Higher Return Prospects: When compared to normal savings accounts and fixed deposits, the potential of earning higher returns in the future cannot be ruled out in the case of these funds.
• Balanced Investment Portfolio: The inclusion of debt funds in a portfolio provides balance through reduced volatility in case of combination with equities.
• Fund Management Expertise: It becomes easy for investors to make use of professional fund management without evaluating individual bonds and debt securities.
• Good Choice for Financial Needs: These funds can be used for planning for higher education, wealth preservation, retirement needs, or income-oriented portfolios.

Taxation of Medium to Short Duration Mutual Funds

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