What are low duration mutual funds?

Investors today have a plethora of options when it comes to mutual funds. Amid these many choices, low duration mutual funds emerge as the funds that seem to be capable of striking balance between returns and risk. This article elaborates on the meaning of low duration mutual funds, discusses their advantages, and identifies the target investors.

Low duration mutual fund meaning

Low duration mutual funds belong to the category of debt mutual funds. These funds primarily invest in fixed-income securities such as government bonds, corporate bonds, and money market instruments. The term ‘low duration’ refers to the relatively shorter maturity period of the underlying securities in the fund's portfolio. The scheme invests in instruments such that the macaulay duration of the portfolio is between six months to a year. Their key objective is to provide investors with a relatively better yield compared to traditional savings accounts or short-term deposits.

Advantages of low duration mutual funds:

Lower interest rate risk: The shorter maturity profile of the underlying securities helps mitigate the impact of interest rate fluctuations on the fund's NAV (Net Asset Value). This characteristic makes low duration funds less sensitive to changes in interest rates compared to long-duration funds.

Moderate risk-return profile: Low duration funds aim to strike a balance between generating reasonable returns and mitigating impact on capital. This makes them suitable for investors who seek potentially higher returns than traditional savings options without exposing themselves to high levels of risk.

Liquidity: The shorter maturity of the portfolio assets enhances liquidity. Investors can redeem their units more easily.

Who should invest in low duration mutual funds?/h2>

Reasonable returns: Investors with a conservative risk profile who prioritize relative stability of the capital while seeking market linked returns may find low duration funds suitable.

Short to medium-term goals: Individuals with short to medium-term financial goals, such as saving for a down payment on a house or funding a child's education, can benefit from the relative stability and moderate returns offered by low duration funds. Additionally, investors can use low duration funds to temporary park cash surpluses.

Investors seeking regular inflow of funds: These funds offer the potential for a regular inflow of funds through Income distribution cum capital withdrawal option. Moreover, investors can use an SWP to create a consistent income stream.


Low duration mutual funds offer a balanced approach to debt investments, combining moderate risk with the potential for reasonable returns. Their shorter maturity duration makes them less susceptible to interest rate fluctuations, enhancing relative stability. However, investors should carefully assess their financial goals, risk tolerance, and investment horizon before choosing low duration funds.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.