Most mutual fund investors stick to liquid funds, ultra short term funds, short term funds, banking & PSU funds, corporate funds, etc. to take care of their short-term needs. Most of them might know about gilt funds. Even though they may not invest in them. However, many investors are not aware of medium duration funds. However, chances are that most people will keep hearing about medium duration funds this year because most mutual fund advisors are recommending these schemes to their clients these days.
As per Sebi mandate, medium duration funds must invest debt in and money market instruments with Macaulay duration of three and four years. As you can see, these schemes are suitable for investors looking to invest for three to four years or more. However, you should check the portfolio duration of the scheme to ensure that the scheme is in line with your investment horizon.
Best MF to invest
Looking for the best mutual funds to invest? Here are our recommendations.
Most mutual fund advisors do not recommend medium and long term debt schemes to regular investors. These schemes are extremely sensitive to changes in the interest rate environment. They suffer when the rates go up. Mutual fund advisors say many conservative investors would find it difficult to handle the volatility faced by these schemes.
In short, if you are looking for a debt mutual fund where you can park money for four years or more and ready to take some risk and volatility, you can consider investing in medium duration funds.
Please watch out for monthly updates so that you can keep track of your schemes. IDFC Bond Fund Medium Term Plan, one of the recommended schemes, has been in the fourth quartile for the last six months. The scheme had been in the third quartile earlier. HDFC Medium Term Debt Fund has been in the third quartile for the last three months.
Best medium duration schemes to invest in 2023
- SBI Magnum Medium Duration Fund
- HDFC Medium Term Debt Fund
- IDFC Bond Fund Medium Term Plan
- Axis Strategic Bond Fund
ETMutualFunds has employed the following parameters for shortlisting the debt mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i)When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii)When H <0.5, the series is said to be mean reverting.
iii)When H>0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance: Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.
Asset size: For debt funds, the threshold asset size is Rs 50 crore
(Disclaimer: past performance is no guarantee for future performance.)
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