What are low-duration mutual funds? Who should invest in them? These funds offer stable returns over six to twelve months. They suit investors seeking liquidity and lower interest rate sensitivity. These funds invest in CDs, CPs, treasury bills, and short-term corporate bonds. Investors can access such low-duration funds through various platforms online
Low duration funds
Low-duration funds are debt mutual funds that invest in debt and money market instruments with an average maturity of six to 12 months. They are suited to investors seeking relatively stable returns over a short-term horizon of six months to a year, offering a balanced mix of liquidity, returns, and lower sensitivity to interest rate changes.Where do these invest?
Low-duration funds primarily invest in a mix of short-term instruments, such as certificates of deposit (CDs), commercial papers (CPs), treasury bills, and short-term corporate bonds. The lower average maturity of the underlying securities helps reduce the impact of interest rate fluctuations, making these less volatile comparedd to long-duration debt funds.Why consider these
These funds are useful during uncertain interest rate environments. Since these invest in short-term instruments, the fund manager can adjust the portfolio more frequently based on changing market conditions. For risk-averse investors who want better returns than traditional savings or fixed deposits without locking in funds for long periods, low-duration funds offer an attractive middle path.How to invest
Investors can access low-duration funds through mutual fund platforms, banks, or financial advisors. It is advisable to review the fund’s credit quality, expense ratio, historical performance, and experience of the fund management team. While these funds aim to preserve capital, credit risk cannot be completely eliminated. So investing in schemes with high-rated instruments is prudent.Points to note
• Low-duration funds are best suited to short-term goals or as part of a larger asset allocation strategy.Live Events
• Avoid using these funds for goals that demand complete capital protection in the short term.Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava, and Labdhi Mehta.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
