Best Long Duration Funds
About Long Duration Mutual Fund
Long duration mutual funds are open ended mutual funds that invest mostly in government and corporate bonds with a longer residual maturity period. They invest in debt and money market instruments with a duration of more than 7 years. As per a SEBI mandate, the long-duration funds must choose bonds with an average maturity period of more than seven years. These funds invest in highly volatile government and corporate bonds and have the potential to deliver high returns along with higher risk for a medium-term financial goal. However, these funds are comparatively riskier than debt funds.
How Do Long Duration Funds Work?
Long duration funds fall within the category of debt funds, primarily directing their investments towards high-quality corporate borrowers for extended periods, typically exceeding 5 years.
Given their extended investment tenure, these funds inherently expose themselves to the entirety of the economic cycle, making them intrinsically riskier than other types of debt funds.
Features of Long Duration Mutual Funds
Long duration mutual funds are believed to have brilliant potential and the capacity to yield high returns. That said, these funds are highly volatile and unstable and are associated with increased risks. They cater to an investor’s financial goals which are long term in nature such as buying a house, a car, a child’s education (or) marriage, a retirement corpus, or anything else one may need for the future. A major part of investors’ money (about 65%) goes into equities as they are market instruments that perform well when the market is high and enables the investment corpus to be exceptional in the long term.
Advantages of Long Duration Mutual Funds
Knowing the risks involved, wise investors keep their money parked in mutual funds for long term investment. Long duration funds have certain unbeatable benefits that other market vehicles rarely provide:
- Compared to debt funds, the long duration funds may earn a higher return.
- These funds could help in achieving medium term goals.
- Long duration funds typically yield higher returns compared to fixed deposits.
- These funds have a probability of giving higher after tax returns for high income investors.
- Provision of stability during market volatility is a plus to investing in long duration funds.
- With long duration funds, investors can enable the diversification of portfolios.
Risk of Long Duration Mutual Funds
Long duration mutual funds have a longer horizon. They involve greater risk than short term funds as they will likely go through an entire business cycle. In comparison to medium and short duration funds, long duration funds pose a higher risk in interest rates due to changes in the business cycle and as they invest the bulk of the corpus in bonds. Rising interest scenarios and credit risk are a few factors which affect long duration funds. These funds may invest in both government and corporate bonds.
Factors To Consider Before Investing in Exchange Traded Funds
- Investment Goals: Long-duration funds can be instrumental in achieving medium-term financial objectives. Therefore, it’s crucial to strategise your investments for an extended period to realise substantial returns.
- Investment Horizon: Opt for long-duration funds with a time horizon spanning 3 to 5 years for the potential of attractive returns.
- Risk Profile: It’s important to acknowledge that long-duration funds carry a higher level of risk compared to many other debt funds. This heightened risk is primarily associated with susceptibility to interest rate fluctuations due to the fund’s investments in extended-duration securities.
- Return Potential: Long-duration funds have the potential to yield superior returns in a declining interest rate environment compared to medium-duration counterparts. It’s advisable to evaluate a fund’s performance by scrutinising its consistent returns over an extended period, typically ranging from 3 to 10 years.
Choosing funds that have consistently outperformed their peers can be a sound investment strategy. Consider them if they have consistently surpassed benchmark rates of return across various timeframes. - Expense Ratio: The expense ratio plays a pivotal role in determining your overall returns from the fund. It represents the fees charged by the fund house for managing various expenses associated with the debt fund. A high expense ratio can erode the Net Asset Value (NAV) of the fund, thereby diminishing your overall returns. Consequently, it’s prudent to opt for funds that boast a low expense ratio.
- Financial Metrics: To assess a debt fund’s suitability, you can delve into financial ratios such as standard deviation, Sharpe ratio, alpha, and beta, among others. Funds with high standard deviation and beta tend to be riskier propositions. On the other hand, debt funds featuring a higher Sharpe ratio are preferable, as they offer a more favourable risk-adjusted return on the portfolio.
Who Should Invest in Long Duration Mutual Funds?
Long-duration mutual funds are suitable for those investors who are susceptible to undergoing volatility for a short duration of time and stay invested for a long period of time. An investor could opt to invest in long-duration mutual funds if they can sit tight through the fluctuation in interest rates with a possible reward of high returns. These funds are focused on making the investor earn better and higher returns in the long run. It fits best for those who have financial goals in the far distant future, who think in decades, like 20 years or 30 years and know how much money they require as a corpus. These funds act as a good investment vehicle and are suitable for investors who are not looking for a fixed income stream.
Taxability of Long Duration Mutual Funds
The taxability of long duration mutual funds remains the same as how we tax debt funds. It is taxed as per the investor’s income tax slab after a holding period of 36 months. If the holding period exceeds 36 months then the fund is taxed at 20% with an indexation benefit.
As you would know, the indexation benefit enables investors to inflate the purchase price to account for inflation adjustment. Tax liability on these funds would completely depend on one’s income tax slab. Investors should be keen to earn a tax-efficient income as compared to fixed deposits if they fall under the highest income tax slab rate.
When an investor earns dividends on their long duration mutual fund, the dividends are considered as a part of their taxable income and are subject to taxation at the applicable rate based on their income tax bracket. Also, there is a 10% TDS on the dividend amount if it exceeds ₹5,000 in a financial year.
How To Invest in Long Duration Funds?
Investing in Long Duration Mutual Funds via your Angel One account is a hassle-free process. Follow these steps to get started:
Step 1: Initiate the process by logging in to your Angel One account using your registered mobile number. Complete the OTP validation and input your MPIN.
Important Note: If you don’t currently possess a Demat account with Angel One, you can promptly open one by undergoing the KYC procedure and providing the necessary documentation.
Step 2: Now, let’s focus on selecting the ideal fund for long-term growth, tailored to your financial goals and risk tolerance. Within the Angel One app’s mutual fund section, consider the following aspects:
- Identify the specific fund you wish to invest in or take guidance from Angel One’s recommended funds across different categories.
- Delve into the fund’s historical performance, tax implications, portfolio sectors, and underlying stocks.
- Utilise the provided calculator to estimate potential returns.
- Gauge the fund’s risk level and align it with your own risk tolerance.
- Examine the fund’s ratings from reputable agencies, typically on a scale of 1 to 5.
- Factor in the fund’s expense ratio to understand the associated costs.
Step 3: Once you’ve decided on the long-term fund(s) that suit your objectives, navigate to your Angel One account. Access the Mutual Funds section and locate your chosen fund. Given the long-term nature of this investment, exercise caution during this stage, considering the following:
- Determine whether you want to invest a lump sum amount or opt for a systematic monthly investment plan (SIP).
- Specify your desired investment amount and choose your preferred payment method. While UPI is recommended, you can also use net banking.
- If you’ve opted for the SIP route, establish a mandate to ensure seamless future instalments.
Top 5 Long Duration Funds to Invest In
The following are the top Long Duration Funds in India:
| Name of the Fund | AUM (₹ Cr) | Expense Ratio | Average YTM | Category YTM | CAGR 5Y | CAGR 10Y |
| Nippon India Nivesh Lakshya Fund | 9411.44 | 0.3 | 7.08 | 7.10 | 7.36 | 0 |
| HDFC Long Duration Debt Fund | 5683.66 | 0.3 | 7.13 | 7.10 | 0 | 0 |
| SBI Long Duration Fund | 2830.38 | 0.28 | 7.11 | 7.10 | 0 | 0 |
| ICICI Pru Long Term Bond Fund | 1033.69 | 0.4 | 7.12 | 7.10 | 6.50 | 7.82 |
| Axis Long Duration Fund | 527.44 | 0.32 | 7.11 | 7.10 | 0 | 0 |
The above-mentioned funds are for informational purposes only and are not recommendations. The funds are ranked based on AUM as of January 2025.
Nippon India Nivesh Lakshya Fund
The Nippon India Nivesh Lakshya Fund has the highest AUM among the 5 funds, at ₹9,411.44 crore, and an expense ratio of 0.30%.
The fund has an Average YTM of 7.08%, which is slightly below the category YTM of 7.10%. Over the past 5 years, it has delivered a CAGR of 7.36%, while no 10-year return data is available.
HDFC Long Duration Debt Fund
The HDFC Long Duration Debt Fund has an AUM of ₹5,683.66 crore and an expense ratio of 0.30%.
The fund’s Average YTM of 7.13% is the highest in the list, slightly above the category YTM of 7.10%. No 5-year or 10-year CAGR data is available for this fund.
Aditya Birla SL Dividend Yield Fund
The Aditya Birla SL Dividend Yield Fund ranks 3rd with a 5-year CAGR of 21.00%. It has an AUM of ₹1,511.41 crore and an expense ratio of 1.42%, which is the highest among the 5 funds.
The fund’s alpha of 0.74 is the lowest in the list, and its Sharpe ratio of 0.52 also ranks the lowest. Over the past 3 years, the fund has delivered a CAGR of 20.88%, ranking 3rd in 3-year performance.
SBI Long Duration Fund
The SBI Long Duration Fund has an AUM of ₹2,830.38 crore and the lowest expense ratio in the list at 0.28%.
The fund’s Average YTM of 7.11% is aligned with the category YTM of 7.10%. No 5-year or 10-year CAGR data is available for this fund.
ICICI Pru Long Term Bond Fund
The ICICI Pru Long Term Bond Fund has an AUM of ₹1,033.69 crore and an expense ratio of 0.40%, which is the highest among the 5 funds.
The fund’s Average YTM of 7.12% is in line with the category YTM of 7.10%. Over the past 5 years, it has delivered a CAGR of 6.50%, and its 10-year CAGR of 7.82% is the highest in the list.
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Long Duration Funds FAQs
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