What are Low Duration Mutual Funds?

Different types of debt funds serve various kinds of investors. As part of its Categorisation and Rationalisation scheme, SEBI divided debt mutual funds into 16 categories based on strategy and duration. One such category is Low Duration Mutual Funds, which invest in debt securities with a Macaulay duration between six and twelve months. 

Let’s explore questions like “What is low duration mutual fund”, its key features, how it works, and who it is best suited for.

Understanding a Low Duration Fund

A low duration fund is a mutual fund that invests in debt instruments with a Macaulay duration of around six to twelve months. Macaulay duration is the weighted average time it takes for a bond or debt instrument’s cash flows to be received. 

Low duration funds offer a middle ground between overnight funds with short maturities and medium or short duration funds with longer maturities. Hence, these funds are suited for low-risk investors with a one-year investment horizon.

Difference Between a Low Duration Fund and a Short Duration Fund

Low duration funds have an average maturity of six to twelve months. Whereas short duration funds invest in debt instruments with an average maturity of one to three years. A short duration fund is riskier, but offers higher returns than a low duration fund.

Features of Low Duration Mutual Funds

When exploring their investment options, investors frequently wonder about low duration mutual funds and their features. Here are some features of low duration funds: 

• These funds invest in debt instruments with an average maturity of six to twelve months.
• They carry slightly higher interest rates and credit risk compared to liquid funds.
• They aim to offer higher returns than liquid funds, making them more attractive in the short term.
• They provide reasonable liquidity when compared to a short duration fund. 

Who is it Suited for?

Queries like, "What is low duration fund?" usually arise among those looking for low-risk investments for up to a year. Low duration funds are perfect for such investors. These funds provide better returns than a savings account and are suitable for people who want stable returns without committing to long-term investments. 

Investors who can handle a little more risk than liquid funds and are seeking higher returns can invest in low duration mutual funds.  

Find the Right Mutual Fund for Yourself

Now that you understand what are low duration funds, it’s time to find one that fits your financial goals. Take the next step in your investing journey today, visit the Tata Capital moneyfy website or Tata Capital’s Moneyfy app to compare mutual funds, assess your risk profile, and invest smartly.