English 
Hindi 
Debt Funds or schemes that invest in long-term fixed-income securities are categorized as Long Duration Debt Funds. The best Long-term Duration Mutual Funds are generally known to provide high returns.
According to SEBI’s mandate, Long-term Duration Debt Funds must be invested in the debt and money market. Their Macaulay Duration should be more than seven years. This is what defines them as long-term investments.
Consider the Below Points Before you Select the Right Instrument for Investing
- Objectives: The purpose of investing in the Long-term Duration Debt Fund is to fulfil your long-term goal like retirement, child’s education, etc. This choice of investment works if you are willing to stay invested for a longer time.
- Risk profile: Considered to be riskier than other debt funds, Long-term Mutual Funds are vulnerable to interest rate fluctuations.
- Return: Top Long-term Debt Funds invest in instruments that have a longer residual maturity and in a falling interest rate situation, generate a higher return.
- Expense Ratio: Consider checking the expense ratio of the fund that you select. A higher expense ratio may reduce the potential rate of return of the fund.
What Are the Risks of Investing In Long-term Duration Debt Mutual Funds
Every investment carries a certain amount of risk. As compared to Short-term or Medium-term Debt Funds, even the best Long-term Duration Mutual Funds carry a certain degree of risk. The risk associated with top Long-term Debt Funds is high but not as high as when you compare it to equities.
When you invest in the best Debt Funds for the long-term, you are primarily investing your corpus in bonds. As defined, the tenure of the best Mutual Funds to invest in for the long-term is more than five years. These funds are also considered to be sensitive to interest rate changes. Bond yields and Long-term Debt Funds have an inverse relationship. When bond prices rise, Long-term Debt Funds give a reduced return. When bond prices fall, Long-term Debt Mutual Funds give better returns. This shows that debt funds for the long-term are prone to a degree of interest rate risk.
Long Duration funds primarily invest in papers that are AAA rated.
The best Mutual Funds to invest in long-term carry high risk. However, before you invest in Long-term Mutual Funds, you should also know their advantages:
- Higher rate of return as compared to other Debt Funds.
- They also form a good option if you wish to achieve long-term goals.
- Returns get the benefit of indexation which makes these funds give tax-efficient returns, especially for investors who fall in the higher income tax slabs.
- It offers stability against the volatility of the stock market.
Do Long-term Duration Funds Have A Better Rate Of Return
When you research the best Mutual Funds to invest in for the long-term, you will notice that they yield high returns. This is, provided, you invest for at least 7 years. The best Long-term Duration Mutual Funds tend to perform outstandingly when the market is witnessing a falling interest rate scenario due to the fact that they invest for a longer period which yields better returns.
However, it is important to note that these debt funds do not fare well in a rising interest rate market scenario and that the rate of return could plummet.
Where do Long Duration Funds Invest
As an investor, investing in the best Long-term Mutual Fund should be a part of your core debt allocation. Once you create an investment portfolio, look for the best money market instrument and debt security to invest in which is suitable to you.
- Debt Securities: Financial instruments that assure the investor a specific amount falls under the category of debt securities. Being a negotiable instrument of trade, debt security is considered to be a top Long-term Debt Fund. Debt securities also assure guaranteed principal repayment along with regular interest payment. Government, corporate and municipal bonds, non-convertible debentures used by companies are also classified as debt securities.
- Money Market Instruments: The Reserve Bank of India defines money markets as markets where you can lend and borrow financial assets, which have a maturity period of at least one year. Instruments like commercial papers, certificates of deposit, treasury bills are considered as money market instruments.
Before you choose to invest, you will need to define your financial goals and the tenure of each goal. Since Long-term Duration Mutual Funds are invested for a longer time, you need to weigh your options as to what works best for you. Mutual funds for long-term investment are considered high risk in the debt Mutual Fund basket of options. Hence, you need to consider your risk appetite before choosing an instrument of choice.
How Long Should I Stay Invested In A Long-term Duration Mutual Fund
The purpose of an investment is to attain a financial goal or desire. Each goal you want to achieve will have a time frame attached to it. You will have short term goals that you want to fulfil within a year. This could be travelling to a new country. A medium-term goal that you may want to achieve is to have funds to start a business venture.
While wanting to achieve the above goals, you will also need to create a retirement fund by the time you are 60 years of age or pay off your house loan mortgage by the time you reach 45.
Each of these goals has a distinctive time frame. So when you want to fulfil your long-term goal, investing in the best Long-term Duration Mutual Funds should be your plan. For this, consider investing your funds for a least 7 years to begin with.
If you take a look at yields or performance of Long-term Mutual Funds, you will notice they give the best return on interest when invested for a longer period.
What is the Taxability on Long-term Duration Mutual Funds
Long-term Duration Mutual Funds comprise debt instruments. When investing in the best Debt Funds for the long-term, you will be investing for a tenure of more than 36 months.
These Long-term Duration Mutual Funds attract long-term capital gain tax of 20% after indexation. Indexation will be calculated considering the Cost Inflation Index (CII). CII factors the inflation in the cost of purchasing or acquiring the Debt Fund. This helps in reducing the capital gain tax and reduces the amount that you will need to pay as a long-term capital gain tax.
Short term Capital Gains are taxed as per the investors’ income slab when the holding period is less than 36 months.
Frequently Asked Questions (FAQs)
1. Are Long Duration Fund High Risk?
The risk associated with Long-term Debt Funds is higher as compared to Short-term or Medium-term Debt Funds.
2. What Kind of Returns can I Earn from Long Duration Funds?
In a falling rate market scenario, your returns on best Long-term Duration Mutual Funds can be better than the returns of an FD.
3. Where do Long Duration Fund Invest?
Long-term Duration Debt funds invest in debt securities and money market instruments.
4. How Long Should I Stay Invested in Long Duration Fund?
The Macaulay Duration of Long-term Duration Mutual Funds is more than 7 years. Hence the general rule of thumb to be considered should be 7 years.
