May 20, 2025: Medium long and longer duration funds are special types of debt funds that are marked by the duration of an investment. While a medium duration fund involves investment for a period of 3 to 4 years, a long-term mutual fund attracts investment for 7 years or more. With careful selection of both types of duration-based funds, investors can improve the overall wealth generated for the period of investment. With a close look at the interest rate movement and the current economic situation of the country, investors can make the right fund selection decision accordingly. But first, let us understand how the duration of a fund affects the overall returns that an investor can generate:
The time period or duration of a debt fund is closely related to the total returns it can help an investor generate. Longer the investment horizon, higher is the probability of volatility in the fund due to interest-rate fluctuations and other changes. For example, with a decrease in the interest rate, the total yield from the investments in long-term funds may increase exponentially.
Investment in Medium Long Duration Funds
The best medium long duration funds can offer protection from market risk and deliver returns.
The following points can help explain the best time for investment in medium long duration funds:
Stability
If the interest rates tend to remain stable for a period of three or more years, the investors must select medium long duration funds. With low market volatility and less chances of changes in the interest rates, probability of capital appreciation in medium duration funds can increase as well.
Low investment horizon
Investors looking for funds with a short investment horizon ranging between 3 to 5 years and must opt for medium long duration funds due to their liquidity.
Portfolio diversification
Investors looking for a way to diversify their portfolio can opt for medium duration funds to generate wealth and receive stability in the short term.
Investment in Long Duration Funds
The best long duration funds can help investors generate exponential wealth. However, complete precaution is essential when selecting long duration funds due to their volatility. The following points can help explain the best time for the selection of long-duration funds.
– Probability of a decrease in interest rates
If investors believe that interest rates are at their peak and can decrease after a certain period then they can select long duration funds for investment. With a decrease in the interest rates, investors can witness significant capital appreciation in long-term funds.
– Long-term investment horizon
Investors looking to park their funds and savings for the long term must opt for long-duration funds with an investment horizon of more than seven years.
Conclusion
Long duration funds can offer an opportunity to generate exponential returns and receive capital appreciation. On the other hand, medium-long duration funds offer protection from market volatility and other changes. With careful selection and understanding of personal financial goals and risk appetite, investors can select the best funds that match their requirements. Careful analysis of the current financial and economic situation and interest rate cycle can help investors in the selection of the right duration-based fund for investment.
