Best Low Duration Funds Sorted by Last 3 Year Returns
About Low Duration Mutual Funds
- When we speak about investing, mutual funds have always been in the limelight for the investor class. Based on risk appetite and investment horizon, there are different categories of funds available for all investors. The classification of mutual funds is often based on their asset allocation i.e., equity funds and debt funds. Low duration funds fall under the debt funds category and invest in fixed-income securities having a short maturity period of 6 to 12 months. Investors could get a potentially stable income with a low-interest rate risk. The types of securities that fall under low durations are:
- REITs
- Money market securities
- Securitized debts
- Corporate bonds
- Permitted derivatives
- Government securities and bonds
- Other eligible mutual fund units
How Do Low-Duration Funds Work?
In the world of investment, mutual funds have taken centre-stage in terms of the investment options they offer to meet the needs of practically every kind of investor in India. In case you are the type of investor who seeks stability in investment and wishes to invest for a short duration (around 6 months to 1 year), you may consider a low-duration mutual fund. This fund falls within the classification of debt funds as it predominantly invests its capital in debt instruments and money market securities. The instruments that these funds invest in may be REITs, corporate bonds, government bonds and securities, permitted derivatives, securitised debts, and money market securities.
Funds are classified into the segment of low-duration funds when they have higher maturities than liquid funds, but lower maturities than short-term, medium-term, and long-term funds. The funds work to allocate the capital in the fund to securities that may potentially offer higher returns than those offered by fixed-income instruments and savings accounts in banks. Investments are dedicatedly chosen so they potentially reflect gains within the period of 1 year.
Features of Low Duration Mutual Funds
Here are some features of the best low duration mutual funds –
- Risk-reward ratio: The top low duration mutual funds minimise or even eliminate the risk for investors. Fund managers place their investments in low-volatile segments, where the potential for earning a high return involves a more manageable risk.
- Ease of Access: The top low-duration mutual funds are easy in terms of liquidity and enable investors to simply park their money and yield returns to fulfil their short-term financial goals.
Advantages of Low Duration Mutual Funds
Some of the benefits of investing in low-duration funds are:
- Low-Duration mutual funds are a good replacement for savings bank accounts for parking funds and earning higher interest rates. Compared to traditional investment options like bank deposits, savings accounts, and liquid funds, these funds offer higher returns.
- The returns are consistent in low-duration funds as they are less volatile – hence they are better than more volatile funds like equity funds.
- With the systematic transfer plan, an investor can transfer the money parked in low-duration funds to any long-term equity fund or hybrid fund.
Risk of Low Duration Mutual Funds
Some of the risks of investing in low-duration funds are:
- Credit risk – One of the major risks faced under low-duration funds is credit risk. In comparison to liquid funds, the risk of default i.e., credit risk, is higher in low-duration funds.
- Interest risk – Another significant risk faced under low-duration funds is the interest rate risk. All types of debt instruments have a risk of change in the interest rate, but it’s relatively less in the case of low-duration funds. Interest rate risk is quite low in low-duration funds when compared to long-term debt funds given their lower duration.
Factors To Consider Before Investing in Low-Duration Mutual Funds
There are some aspects of investment you should consider before heading out and investing in low-duration funds. These are mentioned below:
- A low-duration fund is essentially a debt fund which brings with it three kinds of risk. These are liquidity risk, credit risk, and rate of interest risk. Risks may be enhanced or mitigated depending on the securities (low-quality or high-quality) invested in the fund you are considering. Consequently, if you are thinking of investing in a specific low-duration fund, you may want to analyse the fund’s allocation of assets.
- While investing in mutual funds, especially low-risk debt funds like low-duration funds, the factor of expense ratios must be addressed. These are costs that the fund house incurs due to the management and administration of funds. Fund houses compensate for these costs by charging fees to investors, and these are usually small percentages of the total assets of the fund. In case expense ratios of funds are on the high side, these may make your potential gains seem low as you must pay fees to the fund house.
- You may consider investing in a low-duration fund once you have your investment goals and financial requirements defined. Based on these factors, you can make informed choices regarding investment. You may also consider a low-duration fund based on your individual style of investment and whether you wish to invest with a lower or higher degree of risk. Before investing in low-duration funds, check if your investment’s time horizon is short term or not.
Who Should Invest in Low-Duration Mutual Funds?
- Investors with at least a 3-month investment horizon: Investors with an investment horizon of more than three months should consider investing in low-duration funds. Investors with short investment horizons could ideally invest in low-risk overnight or liquid funds. That said, for a duration longer than 3 months, low-duration funds offer higher returns in exchange for a small increase in risk. Investors can use these funds for temporary parking surpluses from annual bonuses, the sale of an asset, and pooling funds towards a short-term financial goal.
- Investors who want regular income: Low-duration funds provide a regular income stream through a combination of interest earnings and capital gains. With the help of a Systematic Withdrawal Plan, investors with a moderate risk appetite can allocate a portion of their portfolio to these funds and garner regular income.
- Investors who want an alternative to bank deposits: Investors looking beyond traditional investment options like bank savings or recurring deposits or fixed deposits should try investing in low-duration funds for the same duration as they offer better liquidity and the potential to earn higher returns.
- Investors needing a medium to routing investments in equity funds: With the help of a systematic transfer plan, low-duration funds can be used to route investments into equity or hybrid funds. Though liquid mutual funds are commonly used as a holding device, investors with a slightly higher risk tolerance could benefit from the high return-yielding potential of low-duration funds.
Investors who are looking for short-term investment options can opt for low-duration mutual funds as they provide fairly high returns at manageable risks and minimum effort.
Taxability of Low Duration Mutual Funds
Low-duration funds are part of the debt mutual fund category (and thus can also be called low duration debt funds). So the taxation of these funds is exactly like that of debt funds.
- Dividend taxation – The dividend income is added to the investor’s taxable income and taxed as per their slab. There is also a 10% TDS charged by the mutual fund house on dividend amount exceeding Rs. 5000 in a financial year.
- Capital gains taxation – If a low-duration fund is held for a duration of 36 months or less then the investments are subject to short-term capital gains tax and if held for more than 36 months then the investment gains are subject to long-term capital gains tax. Long-term capital gains are taxed at the rate of 20% with the benefit of indexation and short-term gains are taxed at the applicable income tax slab rates.
How To Invest in Low-Duration Funds?
Investing in the low-duration Mutual Fund is hassle-free when done through your Angel One account. You just have to follow these simple steps:
Step 1: Log in to your Angel One account.
Note: In case you do not have an account with Angel One, you can open a demat account with us in under a few minutes by submitting the necessary documents.
Step 2: Determine a low-duration fund that suits your needs and risk profile. You can learn more about each low-duration fund on the Angel One app. Things to consider at this stage are:
- Search for the fund you want to invest in.
- Analyse the fund’s past performance, tax incidence, and the sectors and companies it invests in. You can also calculate the potential returns using the calculator.
- Evaluate the fund’s level of risk, its ratings and expense ratio.
Step 3: Once you finalise the low-duration fund(s) you want to invest in, open your Angel One account, go to the Mutual Funds section, and look for the fund.
- Decide whether you want to invest via SIP or make a one-time investment.
- Decide your monthly SIP date. Now, enter the amount you want to invest and choose the payment mode.
- After placing the order, you can create an AutoPay to make hassle-free future instalments in case of SIP investments.
Top 5 Low-Duration Funds to Invest in
The top funds under this category and a few details of these funds are mentioned below.
| Name of the Fund | Assets Under Management (Rs. in crore) | Maximum Investment (Rs.) | 3Y CAGR (%) | 5Y CAGR (%) |
| Aditya Birla Sun Life Low Duration Fund | 10,045.46 | 100 | 6.17 | 7.02 |
| Kotak Low Duration Fund | 7,907.24 | 5000 | 6.00 | 6.93 |
| HDFC Low Duration Fund | 13,354.99 | 100 | 6.13 | 6.73 |
| ICICI Prudential Savings Fund | 17,661.74 | 100 | 6.01 | 6.67 |
| Axis Treasury Advantage Fund | 4,889.63 | 5000 | 5.68 | 6.64 |
The above-mentioned top funds are for informational purposes only and are not recommendations. The funds are based on a 5-yr CAGR, which is subject to change frequently. Check out real-time data on Angel One.
Aditya Birla Sun Life Low Duration Fund
- This fund falls under the debt category of mutual funds and is a moderately riskier instrument. As on March 31, 2023, the fund has an AUM of Rs. 10,045.46 crores and the minimum investment value is Rs. 100. The expense ratio of the fund is 0.39% under direct investment mode, and currently has no exit load. Mr Mohit Sharma is the fund manager for this scheme since April 2017.
Kotak Low Duration Fund
- Since July 2015, Mr Deepak Agarwal has been managing this scheme as the fund manager. As on March 31, 2023, the fund has an AUM of Rs. 7,907.24 crore and the minimum investment value is Rs. 5000. The expense ratio of the fund is 0.43% under direct investment mode. This fund has a moderate risk level and currently has no exit load.
HDFC Low Duration Fund
- Mr Anupam Joshi has been managing this scheme as the fund manager since October 2015. As on March 31, 2023, the fund has an AUM of Rs. 13,354.99 crore and the minimum investment value is Rs. 100. The expense ratio of the fund is 0.43% under direct investment mode. This fund is marked with a moderate low-risk level and currently has no exit load.
ICICI Prudential Savings Fund
- Mr Rahul Goswami has been managing this scheme as the fund manager since September 2012. As on March 31, 2023, the fund has an AUM of Rs. 17,661.74 crore and the minimum investment value is Rs. 100. The expense ratio of the fund is 0.40% under direct investment mode. This fund is marked with a moderate low-risk level and currently has no exit load.
Axis Treasury Advantage Fund
- Mr Devang Shah has been managing this scheme as the fund manager since June 2016. As on March 31, 2023, the fund has an AUM of Rs. 4,889.63 crore and the minimum investment value is Rs. 5000. The expense ratio of the fund is 0.29% under direct investment mode. This fund is marked with a moderate low-risk level and currently has no exit load.
Low Duration Funds FAQs
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