Low Duration Funds are debt Mutual Fund Schemes which as per the SEBI categorisation circular should invest in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 6 months- 12 months. Short maturity debt funds such as Low Duration Funds offered by domestic mutual funds have emerged as one of the go-to avenues even as the low-interest regime takes the sheen off traditional instruments and other short-term fund categories. Interest rates have hit historic lows with the Reserve Bank of India (RBI) slashing policy rates to boost domestic economic growth amid the pandemic. The repo rate, the central bank’s principal financing rate, has been at a record low of 4% for more than a year.
Short maturity debt funds such as Low Duration Funds tend to do well in times of rising interest rates. Our market phase analysis for the period January-December 2018 when interest rates (repo) were hiked by 50 bps corroborates this view.
Annualised returns computed at the end of the interest rate rising period ended December 31, 2018. Past Performance may or may not sustain in future. The returns shown are the average returns of the Mutual Fund category and does not in any way indicate the returns of a particular scheme of mutual fund.
Low Duration Funds can be a value addition to investors’ portfolio, especially to meet their short-term financial needs. Investors should conduct proper due diligence and consult their financial advisor before investing in these funds, in keeping with their risk appetite.
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