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Overview
Low Duration Funds are short-term debt mutual funds designed to maintain a relatively low level of interest-rate sensitivity.
The category sits between ultra-short and short-duration strategies on the debt-fund duration spectrum.
Low Duration Funds can be useful for investors seeking shorter-term fixed-income exposure, but they still carry interest-rate, credit, liquidity, and market risks.
Explained
A Low Duration Fund is an open-ended debt scheme that invests in debt and money-market instruments while maintaining a relatively short portfolio duration.
Possible investments can include:
The defining feature is the duration of the overall portfolio rather than the maturity of every individual security.
Explained
The fund manager builds a portfolio of debt and money-market instruments while managing its duration within the category requirements.
Returns can come from:
Because the duration is relatively short, these funds generally have less interest-rate sensitivity than Short, Medium, or Long Duration Funds.
However, their NAV can still decline.
A lower-duration portfolio generally experiences smaller price movements than a longer-duration portfolio for a similar change in yields, all else being equal.
Suitability
Low Duration Funds may suit investors who:
They should not be treated as guaranteed-return products.
Advantages
The shorter duration limits sensitivity to interest-rate changes compared with longer-duration debt categories.
A scheme can invest across several issuers and instruments rather than relying on one bond.
The fund manager monitors market yields, liquidity, credit quality, and maturity profiles while maintaining the category's duration requirements.
Low Duration Funds can form part of a shorter-term fixed-income allocation when their risk profile matches the investor's goal.
As open-ended schemes, investors can generally redeem units on business days, subject to applicable rules and scheme terms.
Before you invest
Short duration does not mean low credit risk. A bond can have a short remaining maturity and still be issued by a financially weak company. Review the portfolio's credit-rating mix.
Low Duration Funds have less duration risk than longer-maturity categories, but it is not zero.
A higher YTM can appear attractive, but it may reflect higher credit risk, lower liquidity, or a different portfolio structure. YTM is not a guaranteed investor return.
Check how much of the portfolio is exposed to individual companies, banking groups, or other issuers.
Macaulay duration helps describe the portfolio, while modified duration can help investors understand sensitivity to changes in yields.
Costs directly reduce investor returns. Compare expense ratios with funds following a comparable strategy.
Taxation
Low Duration Funds generally invest predominantly in debt and money-market instruments.
Where the scheme meets the applicable Section 50AA definition of a Specified Mutual Fund, relevant units acquired on or after April 1, 2023 can be treated as short-term capital assets regardless of the actual holding period.
Gains are generally taxed at the investor's applicable income-tax rate.
Treatment can differ for older units or particular circumstances, so investors should verify current tax provisions before redemption.
Step by step
Good to know
It is a debt mutual fund with a relatively short portfolio duration under the applicable category framework.
Low Duration Funds generally maintain a somewhat longer duration profile than Ultra Short Duration Funds.
No. They can face interest-rate, credit, liquidity, and market risks.
Yes. Bond-price changes or credit events can cause NAV declines.
Not necessarily. Higher yield can sometimes indicate greater credit, liquidity, or portfolio risk.
Debt-oriented schemes meeting the Section 50AA definition can receive deemed short-term capital-gains treatment for relevant units, regardless of holding period.
Recap
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FUND
UTI Ultra Short to Short Term Fund Direct Plan Monthly Payout Inc Dist cum Cap Wdrl OptionDebt Low Duration₹1517.53
0.03%
6.32%
7.27%
7.51%
Invesco India Ultra Short to Short Term Fund Direct Plan Daily Reinvestment Inc Dist cum Cap WdrlDebt Low Duration₹1018.62
0.04%6.13%
8.01%
7.26%
HSBC Ultra Short to Short Term Fund Direct Plan Growth OptionDebt Low Duration₹32.68
0.02%6.4%
7.86%
6.92%
Nippon India Ultra Short to Short Term Fund Direct Plan Daily Reinvestment Inc Dist cum Cap WdrlDebt Low Duration₹1011.83
0.03%6.47%
7.59%
6.8%
Aditya Birla Sun Life Ultra Short to Short Term Direct Plan GrowthDebt Low Duration₹784.14
0.02%6.29%
7.38%
6.75%
HDFC Ultra Short to Short Term Direct Plan Growth OptionDebt Low Duration₹67.59
0.03%6.4%
7.42%
6.73%
I
ICICI Prudential Ultra Short to Short Term Fund Direct Plan Weekly Reinvestment of IncDistcumCapWdrlDebt Low Duration₹105.45
0.03%6.08%
7.26%
6.73%
Mirae Asset Low Duration Fund Direct Plan Quarterly Payout of Income Dis cum cptl wdrlDebt Low Duration₹1011.34
0.02%6.22%
7.26%
6.73%
Kotak Ultra Short to Short Term Fund- Direct Plan- Growth OptionDebt Low Duration₹3938.65
0.02%6.46%
7.5%
6.72%
Axis Ultra Short to Short Term Fund Direct Plan Growth OptionDebt Low Duration₹3504.27
0.03%6.43%
7.44%
6.67%
UTI Ultra Short to Short Term Fund Direct Plan Monthly Reinvmt Inc Dist cum Cap WdrlDebt Low Duration₹1517.53
0.03%6.32%
7.27%
7.51%
Mahindra Manulife Low Duration Fund Direct GrowthDebt Low Duration₹1895.12
0.02%6.47%
7.45%
6.66%
Sundaram Ultra Short to Short Term Fund Direct Plan Growth OptionDebt Low Duration₹3994.93
0.03%6.11%
7.31%
6.59%
Nippon India Low Duration Fund Direct Plan Weekly Payout Inc Dist cum Cap WdrlDebt Low Duration₹1011.87
0.03%6.49%
7.47%
6.73%
Baroda BNP Paribas Ultra Short to Short Term Fund Direct Plan Growth OptionDebt Low Duration₹47.4
0.01%6.45%
7.39%
6.59%
LIC MF Ultra Short to Short Term Fund Direct Plan Weekly Payout of Income Dis cum Cap WrdlDebt Low Duration₹16.13
0.02%6.47%
7.35%
6.51%
I
ICICI Prudential Ultra Short to Short Term Fund Direct Plan Reinvestment of Inc DistcumCapWdrlOthersDebt Low Duration₹199.91
0.03%6.5%
7.35%
6.59%
Mirae Asset Low Duration Fund Direct Plan Quarterly Reinvestment of Income Dis cum cptl wdrlDebt Low Duration₹1011.34
0.02%6.23%
7.26%
6.72%
Kotak Ultra Short to Short Term Fund- Direct Plan- Reinvestment of Income Dis cum Cap wdrlDebt Low Duration₹1565.05
0.02%6.18%
7.4%
6.66%
Axis Ultra Short to Short Term Fund Direct Plan Monthly Pyt of Inc Dis cum Cap WdrlDebt Low Duration₹1013.47
0.03%6.43%
7.44%
6.66%
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