Medium Duration Funds: Definition, Risks & Returns

The debt market is a place to buy & sell loans in the form of debt securities. These loans come with a diverse range of maturity durations, each offering distinct interest rates.

Medium-duration funds majorly invest in debt securities with medium maturity durations. Well! This article will help you gain a deeper understanding of medium-duration funds, how they work, risk, returns & related doubts.

What Are Medium Duration Funds?

Medium-duration funds invest in debt instruments such that the average maturity period of the fund is between 3 and 4 years (Macaulay Duration).

The fund manager of this fund wisely selects debt securities and money market instruments to create a portfolio with a Macaulay duration of 3 to 4 years.

Objective- As the name suggests, medium-duration funds focus on maintaining a relatively moderate investment horizon, typically ranging from 3 to 4 years.

[ Related Read- Types Of Debt Funds ]

Top Performing Medium Duration Funds

Here are some of the best-performing medium-duration funds, based on past performances. This list does not offer investment advice. Investors must consider other crucial factors before choosing a mutual fund.

Fund Name1-Year CAGR3-Year CAGR
Aditya Birla Sun Life Medium Term Plan7.77%14.11%
ICICI Prudential Medium Term Bond Fund7.38%6.78%
Axis Strategic Bond Fund7.43%6.58%
HSBC Medium Duration Fund7.53%6.52%
SBI Magnum Medium Duration Fund7.64%6.00%
Last Updated: August 2023

Risks And Returns Of Medium Duration Funds

Risks – As a subcategory of debt mutual funds, medium-duration funds involve interest rate risk, credit risk and liquidity risk.

  1. Interest Rate Risk- This refers to fluctuations in the interest rates paid by the underlying securities.
  2. Credit Risk- The likelihood of default by an issuer of debt securities.
  3. Liquidity Risk– Difficulty in turning assets into cash quickly.

Returns – These funds do not promise fixed returns the way fixed deposits and returns may fluctuate based on specific market conditions and how well a fund is being managed. Generally, these funds generate average annual returns between 4.5% to 9%.

Factors To Consider

Investors can make wise decisions that aid in saving and earning additional returns. One important factor to remember is the expense ratio, which is deducted from the fund’s returns.

A higher expense ratio can notably diminish the overall gains obtained from the fund. Additionally, being vigilant about any additional charges associated with the fund is crucial.

Effective risk management plays a pivotal role in generating favourable returns. A debt fund can effectively mitigate credit risk by strategically investing in securities with high credit ratings.

Moreover, it addresses liquidity risk by maintaining an adequate cash reserve. Therefore, analysis of the portfolio’s composition is imperative.


  1. What Is Macaulay Duration In Debt Funds?

    Macaulay duration, in simple terms, is a measure that helps you understand how long it takes for you to get back the total money you invested in a bond or investment.

  2. What is an Expense ratio & exit load?

    The management cost of a mutual fund is called an expense ratio, while an exit load represents a predetermined charge applicable when investors exit the mutual fund.

  3. How to invest in Medium-duration funds?

    Here are the steps to invest in medium-duration funds
    1. Open an investment account with a reputed AMC or an online investment platform
    2. Complete your KYC
    3. Research and select a medium-duration fund
    4. Decide your investment amount & mode of investment
    5. Make the payment

A commerce graduate turned a digital creator to follow his passion for writing and sharing useful & well-researched information that adds some value to people's lives.

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