Medium to long duration mutual fund

A medium to long duration mutual fund is a SEBI-categorised debt mutual fund scheme that maintains a Macaulay duration of 4 to 7 years. The category was defined under the SEBI October 2017 categorisation framework , positioned between medium duration funds (3-4 years) and long duration funds (>7 years).

For Indian retail investors, medium-to-long duration funds offer:

• Medium-term horizons (4-7 years): Suitable for goal funding within this timeframe.
• Yield premium over shorter-duration debt categories.
• Material rate-cycle sensitivity: Higher than medium duration, lower than long duration.
• Tactical positioning instrument: Effective for moderately confident rate-cycle views.

SEBI category framework

The SEBI category requires:

• Macaulay duration of 4 to 7 years at portfolio level.

The investment universe includes government securities, corporate bonds, and PSU bonds with matching maturities.

Major schemes

• HDFC Medium-Long Duration Debt Fund.
• ICICI Prudential Bond Fund.
• Aditya Birla Sun Life Income Fund.
• DSP Strategic Bond Fund.
• Nippon India Income Fund.
• SBI Magnum Income Fund.
• UTI Bond Fund.

Rate-cycle sensitivity

The category’s 4-7 year duration translates to:

• 100 bps yield decline: Approximately 4-6 per cent NAV appreciation.
• 100 bps yield increase: Approximately 4-6 per cent NAV decline.
• Hold-to-maturity yield: Average portfolio yield.

This is less extreme than long duration but materially more sensitive than medium duration.

Returns

Typical performance:

• Annualised return (cycle-averaged): 7-8.5 per cent.
• Best year (rate-cut cycle): 10-15 per cent.
• Worst year (rate-hike cycle): -3 to -7 per cent.
• Volatility: Moderate-high.

Tax treatment

• Post-April 2023: Slab rate on all gains regardless of holding period, per debt mutual fund taxation 2023 .
• Pre-April 2023 purchases: Pre-2023 LTCG treatment with indexation.

Role in portfolios

Medium-to-long duration suits:

• Goal funding: 4-7 year horizons.
• Tactical rate-cycle positioning: Less extreme than long duration.
• Diversified debt allocation: 15-25 per cent of debt portfolio.

See also

• Mutual funds in India
• Medium duration mutual fund
• Long duration mutual fund
• Short duration mutual fund
• Gilt mutual fund
• Dynamic Bond Mutual Fund
• Banking and PSU Debt Mutual Fund
• Corporate Bond Mutual Fund
• Floater Mutual Fund
• SEBI October 2017 categorisation
• Debt mutual fund taxation (post-2023)

External references

• SEBI
• AMFI India

References

1. SEBI October 2017 categorisation circular.
2. SEBI (Mutual Funds) Regulations 1996.
3. AMFI scheme data on medium-to-long duration funds.
4. Finance Act 2023 debt taxation amendment.