Long Duration Funds: Definition, Features & Benefits

Long Duration Funds can be defined as debt mutual funds that primarily invest in bonds and other fixed-income securities with long maturity periods, usually more than 10 years. The extended investment horizon allows this type of mutual fund to offer higher yields compared to their shorter-duration counterparts.

As per SEBI guidelines, the Macaulay Duration of long-duration debt mutual funds must be 7 years or longer. While this makes these schemes suitable as a long-term investment, it also makes them highly sensitive to changes in market interest rates.

The portfolio of Long Duration Funds generally includes government bonds (G-Secs), corporate bonds, treasury notes, and other long-term securities. The fund manager's ability to select and manage these long maturity debt instruments plays a critical role in determining the performance and risk profile of the fund.

Investors looking for a long term investment with minimal degree of volatility often find Long Duration Funds appealing. They offer an opportunity to capitalize on the interest rate environment, while the diversification across different types of bonds in India can provide a level of protection against concentration risk.

However, one must keep in mind that unlike many other types of debt schemes, this category is less suitable for short-term investing due to the long maturity of the under lying bonds that long duration funds typically invest in.

Below are some unique features of long duration debt funds that you should consider before choosing it as a preferred investment option:

Below are some key benefits of long duration fund investments that you should keep in mind.

Investors should consider the following before choosing a long duration debt fund to invest in:

In order to assess the performance of long duration schemes, investors need to consider the following: