Long duration funds are open-ended mutual funds that are in the nature of debt funds. These funds invest predominantly in debt and debt-related instruments (like corporate bonds or government bonds) or money market instruments that have a maturity of 7 years and more. These funds have relatively lower risk as compared to equity funds or equity-oriented hybrid funds. However, the risk is relatively higher than the short term debt funds due to the interest rate fluctuations on account of long duration.
Investment in long duration funds is ideal for investors with a long term investment horizon. The risk of investing in long duration funds is higher as compared to short duration funds but the return potential is quite higher. Hence, these funds are ideal for investors with a relatively higher risk appetite and longer investment timelines. Investors can add these funds to their portfolio to meet their long term investment goals.
Long duration funds have many advantages for the investors which make them a very good addition to a portfolio. Some of the key advantages of long duration funds are mentioned below.
Long duration funds have many advantages but also are subject to a few disadvantages. Some of the basic disadvantages of long duration funds are mentioned below.
Interest rate risk is the risk of fluctuations in the interest rate and is quite higher in long duration funds. These funds invest a majority of their corpus in corporate bonds or government bonds as well as money market instruments which have a long duration of 7 years or more. This extended duration invites a major impact on the fund due to rising interest rates and a fall in bond prices.
The credit risk in any fund is the risk of default by the bond issuer at the time of maturity of the underlying assets of the fund. The longer duration of these funds increases the credit risk as the risk of default or downgrade of the underlying bond increases with the extended duration.
The taxation of long duration funds is similar to any other debt fund. Investors are liable to pay capital gains tax at the time of redemption of their investment in the long duration funds. The type of capital gain tax and the rate of taxation depends on the period of holding. The details of the long duration taxation are tabled below.
| Short term gains | Tax rate | Long term gains | Tax rate |
| Less than 36 months | Slab rate of investor | 36 months and more | 20% (plus cess and surcharge) |
The common factors that have to be considered while investing in long duration funds are mentioned below.
Long duration funds are quite useful in meeting medium term goals. Investors can therefore use these funds to plan for their long term goals.
Another important aspect to be considered by investors is the investment horizon. The average investment horizon for these funds ranges between 3 years to 5 years.
The risk in any investment is an important consideration while making any investment decision. Investors have to understand the risk parameter involved in any investment to ensure that they do not overexpose themselves beyond their risk appetite. This will result in an unfavorable investment or an unbalanced portfolio for the investor.
The returns of the long duration funds are relatively higher than other debt funds like short duration funds, liquid funds, etc. Hence, investors with the expectations of a relatively higher return and a higher risk appetite can include these funds in their portfolios.
Investors should also consider the expense ratio of the fund. A higher expense ratio will dilute the returns earned through a fund. Hence, it is important for the investor to know the expense ratio of the fund before making the investment decision.
Some of the top long duration funds are mentioned below.
This is a direct plan for long duration funds from the ICICI Prudential Mutual Funds. The details of this fund are tabled below.
| Particulars | Details |
| Fund manager | Mr. Anuj Tagra |
| Launch date | 1st January 2013 |
| Minimum SIP investment | Rs. 1,000 |
| Expense ratio | 1.40% |
| Risk | Low |
The returns provided by the fund as of 17th October 2021 are tabled below
| Period | 6 months | 1 yr | 3 yrs | 5 yrs | Since launch |
| Returns | 1.22% | 1.73% | 10.02% | 7.80% | 8.90% |
This fund is now known as Nippon India Nivesh Lakshya Fund. It is a direct plan belonging to the long duration fund category. The details of the fund are mentioned below.
| Particulars | Details |
| Fund manager | Mr. Pranay Sinha |
| Launch date | 6th January 2018 |
| Minimum SIP investment | Rs. 1,000 |
| Expense ratio | 0.25% |
| Risk | Low |
The returns provided by the fund as of 17th October 2021 are tabled below
| Period | 6 months | 1 yr | 3 yrs | 5 yrs | Since launch |
| Returns | 0.59% | 2.96% | 12.08% | – | 10.91% |
Long duration funds belong to the debt mutual fund category. These funds invest in corporate and government bonds that have a duration of 7 years or more. The returns on these funds are higher as compared to other debt funds along with a higher risk. Hence, these are good investment options for aggressive investors as well as investors with a longer investment horizon.
Yes. Long duration funds get the benefit of indexation under the long term capital gains that are taxed at 20%
Long duration funds invest in debt and money market instruments that have a maturity of 7 years or more
Yes. Long duration funds are subject to higher risk as compared to other debt funds that have a shorter duration. The risk is higher on account of increased interest rate volatility and higher credit risk
The dividends received under long duration funds are taxed in the hands of the investors at their applicable slab rates
The various types of long duration funds are income funds, gilt funds and dynamic funds
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