Low Duration Mutual Fund

Low Duration Funds are open-ended debt mutual fund schemes that invest in debt and money market instruments such as government securities, certificate of deposits and corporate bonds etc. The portfolio is managed in a way that its Macauley duration remains between 6 and 12 months.

In simple terms, these funds invest in fixed income securities that are of a relatively short term. They are usually less sensitive to changes in interest rates than debt funds with longer durations because of their shorter portfolio duration, but they are still subject to interest rate and credit risks.

When you buy a low-duration fund, you are putting your money in a pot with other investments of investors. The fund manager invests this pool in a range of short-term debt and money market instruments.

The fund earns returns mainly through:  

1. Interest income: The securities held by the fund generate interest income.
2. Changes in bond prices: The value of debt securities can rise or fall due to changes in interest rates and market conditions.
3. Reinvestment: The fund manager reinvests the proceeds from maturing securities into suitable instruments.

The value of your investment is reflected through the fund's NAV (Net Asset Value), which fluctuates based on the value of the underlying securities. Therefore, returns are not fixed or guaranteed.

You can invest in low duration mutual funds through Paisabazaar app by following the simples steps below: 

Step 1: Open your Paisabazaar account on mobile.
Step 2: Click on ‘Mutual Funds’ on the homescreen.
Step 3: Apply Filters to search ‘Low Duration Fund’ under ‘Fixed Income’ category. 
Step 4: Select the ‘Low Duration’ box to explore options. 
Step 5: Choose one AMC/Fund based on your risk appetite  
Step 6: Complete your KYC to start investing in Low Duration Debt Funds.    

The entire process will take a few minutes.  

The capital earned from selling the mutual fund units is subject to tax. Since low duration mutual funds are debt funds, the taxation rule will apply the same as the debt funds.

Capital Gain Tax

For units acquired on or after 1 April 2026, gains from a Low Duration Fund may be covered under Section 50AA if the fund meets the applicable definition of a specified mutual fund. Such gains are treated as short-term capital gains and taxed as per the investor's applicable slab rate, irrespective of the holding period. 

Dividend Income (IDCW) 

If you choose an IDCW (Income Distribution cum Capital Withdrawal) option, the IDCW received in your hands is taxable at your applicable income tax slab rate. TDS of 10% may also apply when the prescribed threshold of Rs 10,000 in a financial year is crossed. Please note IDCW is not assured. Funds declare this only when the fund is in a profit state.