Debt: Medium Duration

What is it?

Medium-duration debt funds invest in debt & money market instruments with a weighted average maturity (Macaulay duration) of between 3 and 4 years.

Objective

The objective of these funds is to provide better risk-adjusted returns compared to risk-free options over a similar duration of 3 to 4 years. These funds will provide decent returns with low volatility.

Suitability and opinion

These funds are suitable for individuals with a low to moderate risk tolerance and a medium-term horizon of 3-4 years. These funds are also a good option compared to FDs of similar tenure for investors who are willing to take slightly higher risks. We believe that these funds have a far lower risk compared to equity funds but their prices can fluctuate moderately if interest rates change. We feel that investors can avoid investing in this category and opt for short-duration debt funds if they want some debt exposure in their portfolio. The government's decision to remove indexation benefits has adversely affected this category.