What are Medium to Long Duration Funds?
Medium to Long Duration Fund is an open ended mutual fund scheme which predominantly invest in debt securities with Macaulay duration ranging from 4 years to 7 years. The maturity period of the investment portfolio is higher than that of low duration and medium duration debt funds.
Numerous Asset Management Companies (AMC) in India offer Medium to Long Duration Funds to investors who seek secure fixed income investment avenues.
Who should invest in a Medium to Long Duration Fund?
Risk-averse investors who are looking to park their money for a period of 4 to 7 years, and earn moderate returns on the same should opt for these funds. As the majority of investment portfolio comprises debt securities, mostly with high credit rating, these funds carry less risk.
Debt Mutual Funds are relatively less volatile compared equity mutual funds, because the returns are not affected by market fluctuations, but depend on the credit risk associated with underlying debt securities. Investors who can tolerate volatility and want to earn high returns by capitalizing on the changing market price of financial instruments should opt for equity funds rather than these funds.
Taxation on Medium to Long Duration Funds
Debt Funds are taxed based on their holding period. If the holding period is less than 36 months, Short Term Capital Gains Tax is levied which is according to the income tax slab of the investor. And, if the holding period is more than 36 months, Long Term Capital Gains Tax is applicable. LTCG is levied at the rate of 20% with indexation benefits.
If one invests in Medium to Long Duration Funds, it is advisable to stay invested for more than 5 years to earn high returns, since debt instruments in the investment portfolio of these funds have their maturity period of more than 4 years. If there will be frequent outflows from the mutual fund, before the maturity of debt securities, it negatively affects the returns from these funds. Here is a list of top Medium to Long Duration Funds.
Here is a List of Top Performing Medium to Long Duration Mutual Fund Schemes to Invest in FY 2020: