Site icon Kuvera

Top Performing Low Duration Funds in 2022

Low Duration Funds

Low duration funds are a type of mutual fund in which the fund manager invests the corpus in short-term debt securities. These invest in debt instruments whose maturity ranges from 6 to 12 months. The low tenure fund invests in fixed income instruments and helps investors avoid market risks and reap the benefits of decent returns.

 

You can visit our platform – Kuvera, and get all the requisite information about these funds. Kuvera is a 100% online platform; you can invest without worrying about any commission or fees as we do not charge any fee or comission for our services.

 

Sign up and start investing!  

 

 

Top 10 Low Duration Funds for 2022:

Here is a list of some low duration funds ranked on the basis of 3-year annualised returns as on June 24 2022:

 

Fund Name 3-Year Annualised Returns
JM Low Duration Growth Direct Plan 8.35%
JM Low Duration Bonus Principal Units Growth Direct Plan 8.31%
UTI Treasury Advantage Growth Direct Plan 7.41%
Sundaram Low Duration Fund Direct Plan 6.63%
Nippon India Low Duration Growth Direct Plan 6.46%
Aditya Birla Sun Life Low Duration Growth Direct Plan 6.44%
Kotak Low Duration Growth Direct Plan 6.38%
DSP Low Duration Growth Direct Plan 6.32%
BNP Paribas Low Duration Growth Direct Plan 6.23%
HDFC Low Duration Growth Direct Plan 6.21%

 

The following sections will cover more about low-duration funds. Read on to know more about the same. 

 

How Low Duration Funds Work?

To understand these funds, you must understand their duration, the underlying debt instruments, and earning sources. 

 

Duration of any investment reflects changes in a fund’s value in response to movements in market-linked interest rates. The higher duration of any investment means that fund’s value is more volatile and thereby has higher market interest rate risks and vice versa. 

 

In the case of low-duration debt funds, the investment tenure of securities (bonds and debentures) in which they are investing is 6-12 months. Hence, they come with a lower-interest rate risk than most other categories of debt mutual funds such as Credit Risk Mutual Fund

 

SEBI guidelines do not restrict the type of debt security in which low duration funds have to invest. There is also no restriction on the credit quality of securities in which funds may invest their money. Hence, fund houses may invest in various short-term debt securities according to their strategy and investment objective. Securities in which funds invest their money include government bonds, money market securities, corporate bonds, etc.

 

These low duration mutual funds invest their corpus in money market and debt securities. They generate returns via interest income and capital gains arising from these holdings. Fund managers invest a part of their corpus in securities having lower credit quality as they provide higher returns. 

Apart from interest, these funds also have capital gains as their alternate source of earnings. Fund managers start investing their fresh inflows in debt securities, having a longer maturity when interest rates start falling. The gains arising from capital appreciation of long-term debt holdings cover any loss of interest income for the investors. Fund managers consider market interest rates and the credit profile of any bond before making an investment decision. 

 

Who Can Invest in Low Maturity Debt Funds?

Here is a list of parameters that defines who must invest in these funds:

 

Historically Individuals seeking a regular income have been an ideal candidates for parking their money in this category of funds. Interest income and gains arising from capital appreciation of these debt holdings are two familiar sources of income for low-duration mutual funds. 

 

Investors looking for an alternative investment option apart from bank deposits can go for investing in these funds. If an investor has a moderate risk capacity, these funds are more lucrative than most bank deposit. 

 

Advantages of Low Duration Funds

The advantages of investing in these funds are as follows:

 

These funds come with moderate to low risk when compared to equity funds. Funds invest in debt securities having a maturity period of 6-12 months. When the interest rate falls, any loss of interest income from fresh bonds will be covered by capital gains arising from capital appreciation of existing bonds. 

When the interest rate increases, fund managers reduce the Macaulay duration of the portfolio, thereby minimising capital losses. Fund managers also consider the credit quality of debt instruments while investing. This makes low-duration funds a suitable for investors with a moderate risk appetite. 

 

Low duration funds have historically provided better return than, overnight or liquid funds. The underlying financial instruments come with two sources of income which adds to their attractiveness in the investment market.

 

Fund managers play an active role in managing the fund’s portfolio. They make decisions for optimising the portfolio and providing returns to investors. Their active presence helps in mitigating the risk involved in this investment.

 

Disadvantages of Investing in Low Duration Mutual Funds

 

One of these funds’ most significant limitations is credit risks. SEBI has no restrictions or specific guidelines directing fund managers of these schemes to avoid certain types of debt securities. Hence, many fund managers invest in relatively low-rated instruments hoping for higher returns.

 

 Things to Consider before Investing in Low Duration Mutual Funds

You must consider the following things before investing in these funds:

 

Another important thing that one must consider before investing money in these funds is their expense ratio. The expense ratio directly impacts the returns that investors will receive at the time of redemption. One must thoroughly review the expense ratios of different funds in the same category before making a decision. 

 

A fund manager plays a pivotal role in overseeing the fund’s operation. Decisions taken by them have a direct bearing on the performance of the fund. Investors must analyse a fund manager’s past performance and see whether their strategies or vision will lead to the fulfilment of their financial objective. 

 

These funds are most suitable for investors with moderate risk tolerance. These are not entirely risk-free, and completely risk-averse investors can avoid these mutual fund schemes. 

 

 Taxation of Low Duration Funds

 Capital gains arising from the sale of units come under the purview of taxation. Capital gain is the difference between the purchase and sale price. It is taxable under two heads, which are given below:

 

If the holding period of this fund is less than 36 months or three years, all gains are taxed as per the income tax slab rate of the investor. 

 

If the holding period is 36 months or more, then gains arising from these funds are subject to LTCG tax. The rate of taxation for LTCG is 20% with indexation benefits. 

 

Final Word

Low-duration funds are the most suitable investment option for high returns with moderate risk tolerance. This detailed guide about top-performing funds will help you make an informed decision.

You can visit Kuvera to start investing in the best-performing low-duration funds of 2022 without paying any commission. 

 

Frequently Asked Questions

 

It depends on fund houses whether they want to impose an exit load on investors. It varies from mutual fund scheme to mutual fund scheme. So, you must check the scheme-related documents carefully before investing. 

 

Low-duration funds do not come with any lock-in period for investors. They are highly liquid; individuals can redeem their investment as and when they want. 

 

Interested in how we think about the markets?

 

Read more: Zen And The Art Of Investing

Watch/hear on YouTube:

 

 

 

Start investing through a platform that brings goal planning and investing to your fingertips. Visit Kuvera.in to discover Direct Plans and Fixed Deposits and start investing today.

#MutualFundSahiHai #KuveraSabseSahiHai!

 


Top Asset Management Companies
IDFC Mutual FundQuant Mutual FundCanara Robeco Mutual Fund
Tata Mutual FundDSP Mutual FundUTI Mutual Fund
Whiteoak Mutual FundMotilal Oswal Mutual FundMirae Asset Mutual Fund
ICICI Prudential Mutual FundHDFC Mutual FundAditya Birla Sunlife Mutual Fund
Baroda BNP Paribas Mutual FundInvesco Mutual FundsJM Financial Mutual Funds
Tata Mutual FundsNippon Mutual FundsFranklin Templeton Mutual Funds
Sundaram Mutual FundEdelweiss Mutual FundsL&T Mutual Funds
Axis Mutual FundKotak Mutual FundLIC Mutual Fund
DSP Mutual FundIIFL Mutual FundParag Parikh Mutual Funds
Exit mobile version