Low Duration Fund Meaning

Low Duration Fund Meaning – Low Duration Funds

Low Duration Funds invest in debt securities with short maturity periods, typically less than one year. This makes them less sensitive to interest rate changes, offering a balance of modest yield and reduced risk.

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What Is Low Duration Fund?

A Low Duration Fund is a type of debt fund that holds securities maturing in a short period, generally between 6 to 12 months, allowing for quick adjustments to changing economic conditions.

These funds aim to reduce the risk of interest rate fluctuations by investing in shorter maturity securities. They are suited for investors looking for relatively safe short-term investments in the fixed income category, providing easier access to funds without significant interest rate risk.

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Difference Between Low Duration and Short Duration Fund

The main difference between Low Duration and Short Duration Funds is that Low Duration Funds typically invest in securities that mature in about 1 year or less, whereas Short Duration Funds invest in securities that mature within 1 to 3 years.

ParameterLow Duration FundsShort Duration Funds
Maturity PeriodTypically less than 1 yearRanges from 1 to 3 years
Interest Rate RiskLower due to shorter maturity periodsHigher compared to Low Duration Funds
Investment ObjectiveFocus on stability and lower riskBalance between yield and risk management
Return PotentialGenerally lower returns due to shorter risksPotentially higher returns due to longer maturities
LiquidityHigh liquidity due to short maturitiesModerate liquidity, depending on the fund specifics

How To Invest In Low-Duration Funds?

Investing in Low-Duration Funds is straightforward and can be done through various financial platforms like Alice Blue. These funds are ideal for investors seeking short-term investment options with minimal risk.

  • Choose a Fund House: Select a reputable fund house that offers low-duration funds with a strong track record. Ensure the fund house has robust customer support and transparent reporting practices.
  • Assess the Fund’s Performance: Review the past performance of the fund, focusing on returns over similar short-term periods. Compare these returns against industry benchmarks to gauge relative performance.
  • Consider the Expense Ratio: Look at the fund’s expense ratio, as lower expenses can significantly impact short-term investments. Remember, even small differences in fees can affect net returns.
  • Risk Assessment: Understand the types of securities the fund invests in and their associated risks. Consider how these risks align with your personal risk tolerance and investment goals.
  • Investment Process: Most platforms allow online investment, making the process quick and convenient. Physical forms are also an option for those preferring traditional methods. Regularly monitor your investment to adapt to any financial market changes effectively.

Advantages and Disadvantages of Low Duration Funds

The principal advantage of Low Duration Funds provides stability with low sensitivity to interest rate fluctuations, suitable for conservative investors. However, their main drawback is limited growth potential, as shorter maturity investments generally yield lower returns.


  • Stability: These funds provide a stable investment option with lower volatility due to their short investment horizons, making them less prone to large swings in value due to market fluctuations.
  • Liquidity: High liquidity makes it easy for investors to enter or exit positions with minimal impact on the market price, offering flexibility to respond to personal financial needs quickly.
  • Lower Interest Rate Sensitivity: Shorter maturity of the investments makes these funds less sensitive to interest rate changes, reducing the risk of major price fluctuations and providing a more predictable return profile.
  • Access to Diverse Instruments: Investors get exposure to a range of debt instruments, enhancing diversification and spreading risk across different types of debt securities.
  • Suitable for Short-term Goals: Ideal for investors with short-term financial goals due to the quick maturity of assets, allowing for strategic planning and faster realization of investment returns.


  • Limited Growth Potential: The shorter maturity of investments often results in lower yields compared to longer-duration funds, potentially leaving investors looking for higher returns to seek alternative options.
  • Cost Implications: Despite lower risk, the costs associated with managing the fund can diminish returns, especially if the expense ratio is high, which can eat into the overall profitability of the investment.
  • Market Risk: Although lower than long-term funds, market risks such as changes in credit ratings of the assets can affect returns, introducing an element of unpredictability that could impact investment outcomes adversely.

Low Duration Fund Taxation

Low-duration funds are taxed as debt funds, with gains taxed based on how long you hold them. Gains from holdings under three years are taxed as income, while those held longer benefit from a lower tax rate.

For low-duration mutual funds, if you sell your shares within three years, any profit is considered Short Term Capital Gains (STCG) and is taxed at your regular income tax rate. This means the gain adds to your overall income, impacting your tax bracket. However, if you hold the shares for more than three years, the profit is treated as Long Term Capital Gains (LTCG) and taxed at a rate of 20% after considering indexation benefits, which adjust the purchase price for inflation. 

For instance, suppose you invest ₹1,00,000 in a low-duration fund. Over four years, the value of your investment grows to ₹1,50,000. Assuming indexation, the adjusted purchase price can be recalculated to ₹1,10,000 using tax authorities’ inflation rates. The taxable gain would then be ₹40,000 (₹1,50,000 – ₹1,10,000), not ₹50,000. This reduced gain is taxed at 20%, so you would pay ₹8,000 in taxes instead of ₹10,000, saving ₹2,000 due to indexation benefits.

Best Low Duration Fund

For anyone in India looking to invest for the short term, low-duration mutual funds could be a smart pick. They come with a moderate level of risk and the possibility of gains over a shorter period. Here’s a list of these funds, sorted based on their one-year returns to help you choose wisely:

Fund Name1Y ReturnsFund Size (in Cr)
Aditya Birla Sun Life Low Duration Fund7.7%10,748
HSBC Low Duration Fund7.7%439
Nippon India Low Duration Fund7.6%6,220
Mahindra Manulife Low Duration Fund7.6%499
Axis Treasury Advantage Direct Fund7.5%5,100
Sundaram Low Duration Fund7.4%392
UTI Low Duration Fund7.3%2,672

Low Duration Funds – Quick Summary

  • Low Duration Funds invest in debt with short maturity and are less sensitive to interest rate changes, offering a balance between modest yield and reduced risk.
  • A Low Duration Fund holds securities that will mature soon which allows quick adjustments to the economy, making it a safe option for short-term investments.
  • The main difference between Low Duration and Short Duration Funds is that the former invests in securities maturing in less than a year, while the latter targets those maturing in one to three years.
  • To invest in Low-Duration Funds, choose a reputable fund house, review the fund’s performance, look at the expense ratio, understand the risks, and invest through a convenient online platform.
  • Low-duration funds offer stability with minimal interest rate risk, suitable for conservative investors. However, due to their shorter investment horizons, they also have limited growth potential.
  • The taxation of Low-Duration Funds depends on the holding period. Gains from holdings under three years are taxed as income, while those held longer are taxed at 20% with indexation benefits.
  • For short-term investments in India, low-duration mutual funds are a sensible choice with moderate risk and the potential for gains. 
  • Some options based on one-year returns and fund size include Aditya Birla Sun Life Low Duration Fund—7.7% return, ₹10,748 Cr fund size, HSBC Low Duration Fund—7.7% return, ₹439 Cr fund size, and Nippon India Low Duration Fund—7.6% return, ₹6,220 Cr fund size.
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Low Duration Fund Meaning – FAQs

What Is Low Duration Fund?

A Low Duration Fund invests in debt securities with short maturity periods, typically less than one year, making them less susceptible to interest rate changes and offering a stable return profile suitable for short-term investment objectives.

What Is The Difference Between Short Term Fund And Low Duration Fund?

The main difference between a Short Term Fund and a Low Duration Fund is that Short Term Funds invest in securities maturing in 1 to 3 years, while Low Duration Funds focus on securities maturing in less than 1 year.

What Are The Risks Of Low Duration Funds?

The primary risk of Low Duration Funds is credit risk, where the issuer of the debt securities may fail to meet payment obligations, leading to potential losses. However, these risks are generally lower than those associated with longer-duration debt funds.

What Is A Short Duration Fund?

A Short Duration Fund is a type of mutual fund that invests in debt securities with slightly longer maturities, typically between 1 and 3 years, providing a balance between yield and risk.

Are Low Duration Funds Safe?

Low Duration Funds are considered safer compared to longer-term debt funds due to their shorter maturities and lower sensitivity to interest rate changes. However, like all investments, they carry some risk.

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