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Medium Duration Mutual Funds
3 Year Average Returns
7.87%
Funds on Dhan
14
Medium Duration Funds are a type of debt funds that invest in debt and money market instruments with a maturity of 3 to 4 years. These Funds are suitable for investors who want to preserve their capital and earn regular income. While these are the best Medium Duration Mutual Funds to invest in, you must know these 3 things before you start investing.
- Goal: Medium Duration Funds invest in bonds with maturities between 3 to 4 years, aiming for a balance between risk and return.
- Investment Horizon: Ideal for investors willing to commit their money for 3 to 4 years, seeking better returns than Short Duration Debt Funds.
- Risk: They present moderate risk, with the potential for higher returns compared to Short Duration Funds.
Best Medium Duration Funds to Invest in 2026
Note: 3Y & 5Y returns are annualised. Rest everything is absolute.
Scheme | AUM (in Cr.) | Fund Age | 1W | 1M | 3M | 6M | 1Y | 3Y  | 5Y |
|---|---|---|---|---|---|---|---|---|---|
Compare | ₹ 3,343 | 13 Yrs | 0.25% | 0.54% | 0.55% | 3.54% | 7.85% | 10.53% | 12.66% |
Compare | ₹ 1,868 | 12 Yrs | 0.40% | 0.50% | 0.30% | 3.43% | 5.44% | 8.73% | 7.32% |
Compare | ₹ 144 | 12 Yrs | -0.25% | 0.47% | 2.90% | 3.29% | 6.54% | 8.57% | 6.90% |
Compare | ₹ 144 | 12 Yrs | 0.30% | 0.42% | 0.48% | 3.11% | 5.35% | 8.36% | 6.88% |
Compare | ₹ 5,260 | 13 Yrs | 0.40% | 0.61% | 0.65% | 3.76% | 6.20% | 8.34% | 7.36% |
Compare | ₹ 1,939 | 13 Yrs | 0.38% | 0.66% | 0.65% | 3.48% | 5.88% | 8.32% | 7.32% |
Compare | ₹ 3,514 | 13 Yrs | 0.30% | 0.46% | 0.61% | 3.50% | 5.73% | 7.82% | 6.77% |
Compare | ₹ 666 | 11 Yrs | 0.29% | 0.74% | 0.31% | 2.88% | 4.86% | 7.70% | 6.69% |
Compare | ₹ 6,319 | 13 Yrs | 0.34% | 0.44% | 0.43% | 3.50% | 5.62% | 7.61% | 6.76% |
Compare | ₹ 1,236 | 13 Yrs | 0.26% | 0.40% | 0.67% | 3.43% | 5.45% | 7.51% | 6.04% |
Compare | ₹ 120 | 5 Yrs | 0.30% | 0.76% | 0.12% | 2.88% | 4.24% | 7.10% | 6.03% |
Compare | ₹ 247 | 13 Yrs | 0.36% | 0.50% | -0.43% | 2.36% | 3.62% | 6.92% | 6.13% |
Compare | ₹ 34 | 11 Yrs | 0.36% | 0.63% | -0.07% | 2.46% | 3.97% | 6.79% | 5.90% |
Compare | ₹ 32 | 13 Yrs | 0.31% | 0.52% | -0.09% | 2.06% | 3.01% | 5.91% | 4.90% |
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Disclaimer: Mutual fund investments carry market risks; read all scheme-related documents carefully. Past performance does not guarantee future returns.
About Medium Duration Funds
Mutual funds that offer you a balanced choice between short- and long-term investments are known as Medium Duration Funds. These funds mostly make investments in debt instruments having maturities of 3 to 4 years, such as bonds and fixed-income securities. Compared to Short-Term Funds, Medium Duration Funds have a longer maturity period but are not as long as Long-Duration Funds. Check out more features of Medium Duration Funds:
- Associated Risks: The interest rates on Medium Duration Funds are higher than those on short-term funds. Most people refer to debt funds as risk-free funds, however, these mutual funds are not entirely risk-free. Some of the common risks associated with Medium Duration Funds include liquidity, credit, and interest rate risks.
- Low Volatility: In comparison with longer-duration funds, these funds are somewhat protected from market volatility because of their lower sensitivity to changes in interest rates.
- Diversification Benefits: Medium Duration Funds provide great diversification for your portfolio, including corporate bonds, government securities, and money market instruments.
The main benefit of Medium Duration Funds is their capacity to provide a balanced approach to risk and return. Here are some more potential benefits of investing in Medium Duration Funds:
- Higher Returns: When compared to short-term funds, Medium Duration Funds frequently offer better returns. If you're looking for an income stream without the higher interest rate risk that comes with long-term bonds, these funds might be of interest to you.
- Diversification Benefits: Medium Duration Funds invest in a diverse range of securities, including corporate, government, and other fixed-income assets. Through diversification, the impact of underperformance in any one bond or sector can be reduced and risk can be distributed.
- High Liquidity: Compared to long-term debt funds, these funds offer comparatively better liquidity, making them ideal for investors with medium investment horizons.
- Strategic Management: Given the active management of many Medium Duration Funds, fund managers have the ability to make strategic decisions by incorporating their knowledge of the market into their analysis. The potential for rewards and risk management may be improved by using this approach.
To make sure that Medium Duration Funds fit your risk tolerance and financial objectives, take into account the following considerations before investing in them:
- Balanced Portfolio: Medium Duration Funds may be a good choice if you want to strike a balance between risk management and income generation. They can give greater returns than short-term funds, along with reducing interest rate risk associated with long-term bonds.
- Investment Horizon: You may find that Medium Duration Funds are suitable if your investing horizon is between 2 to 5 years.
- Interest Rate Sensitivity: Even though Medium Duration Funds are less sensitive to interest rate swings than long-term funds, they still carry some risk. You should look for safer investment options if you have a low-risk tolerance and are particularly afraid of suffering a capital loss.
- Expense Ratio: The returns on debt funds are lower than those on equity mutual funds. Therefore, choosing a fund with a low expense ratio to invest in becomes important.
Medium Duration Funds are an excellent investment option if you are looking for steady cash flows along with regular income streams through interest and dividend payments. Check out the following factors to know, if Medium Duration Funds are a suitable choice for you:
- Balanced Returns: Medium Duration Funds can be appealing if you're an investor looking for a combination of income and capital appreciation. These funds provide a mix of consistent income and the potential for moderate growth.
- Moderate Risk Tolerance: Medium Duration Funds are specifically built with your moderate risk tolerance in mind. Compared to high-risk options, they offer a more stable investment environment, even though risk won't be completely eliminated. These funds fit your risk profile nicely if you're willing to take on a moderate amount of risk in the hope of earning higher returns.
- Diversification: If you want to diversify your fixed-income assets, Medium Duration Funds may be beneficial. These funds are essential for providing a broad mix of debt instruments to your entire investment plan because diversification assists in spreading risk across different asset classes.
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FAQs
Medium Duration Funds invest in debt and money market instruments with a medium-term horizon, typically aiming for a portfolio duration of 3 to 4 years. These funds seek to balance risk and return by investing in a mix of securities, offering potentially higher returns than shorter duration funds while managing interest rate risk.
These funds are typically invested in a range of debt instruments, including corporate bonds, government securities, and money market instruments, with maturities aligning with the medium-term investment strategy. The choice of securities aims to optimize returns while keeping in mind the fund's duration and the current interest rate environment.
Medium Duration Funds can generate profit through interest income and capital gains on the debt securities they hold. The actual returns depend on the interest rate movements and the credit quality of the underlying securities. While these funds aim to offer moderate returns, they come with a certain level of interest rate risk.
No, Medium Duration Funds are not tax-free. The returns from these funds are subject to taxation according to Indian income tax laws. The tax treatment depends on the holding period of the investment, distinguishing between short-term and long-term capital gains.
For investments held for less than three years, profits are taxed as short-term capital gains at your income tax slab rate. For investments held for more than three years, profits are considered long-term capital gains and are taxed at 20% with the benefit of indexation, which adjusts the purchase cost for inflation.
To choose the best Medium Duration Fund, consider factors such as the fund's historical performance, credit quality of the underlying portfolio, interest rate outlook, and the fund manager's expertise. Also, assess the fund's expense ratio, as lower costs can contribute to higher net returns. Align the fund's risk and return profile with your investment objectives and risk tolerance.
No, it's not necessary to open a demat account for investing in Medium Duration Funds. You can invest directly through Mutual Funds AMC or through online platforms that allow for mutual fund investments without the need for a demat account, making it convenient and accessible for investors.
Both lumpsum and SIP (Systematic Investment Plan) investments have their advantages in Medium Duration Funds. Lump Sum investments may be suitable if you have a large sum available and wish to invest at a particular point in time. SIPs are ideal for those looking to invest regularly, spreading out their investment over time to average out the cost of investment.
To start an Medium Duration Fund SIP online, follow these 4 steps:
- Open Demat Account
- Choose the Medium Duration Fund you wish to invest in.
- Choose the SIP option, specifying the amount and SIP date
- Set up an auto-pay via bank account to automate the SIP payments
Yes, you can sell or redeem your units in Medium Duration Funds at any time. However, it's important to consider the current market conditions and any exit load that may apply, as redeeming units too early might impact your returns, especially if the fund has not reached its optimal investment period according to its duration strategy.
No, there is no mandatory lock-in period for Medium Duration Funds, offering you the flexibility. However, given their medium-term investment strategy, it may be beneficial to hold investments for a period that aligns with the fund's duration to potentially optimize returns and mitigate the impact of interest rate fluctuations.
Medium Duration Funds carry interest rate risk, meaning their portfolio's value can fluctuate with changes in interest rates. Additionally, they are exposed to credit risk, depending on the creditworthiness of the securities within the portfolio. These risks suggest that while Medium Duration Funds seek to balance return and safety, they are not without potential for loss.
Medium Duration Funds, like all investments, come with risks and are not completely safe. While these funds invest in debt securities which are generally considered safer than equities, they still carry risks such as interest rate risk and credit risk. The safety of these funds is relative to their investment strategy and the management of the fund, making them safer compared to equity funds but not entirely risk-free.
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