Best medium duration funds to invest in 2020

As per Sebi categorisation, medium duration schemes must invest in debt and money market instruments with a Macaulay duration of the portfolio between three and four years.

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Here's an update on our recommended medium duration funds in December. There is no change in the list this month. If you are investing in these schemes, you may continue to do it. If you have never heard about them or invested in them, be forewarned: you are likely to come across them because everyone is upbeat about the prospects of these schemes these days.

As per Sebi categorisation, medium duration schemes must invest in debt and money market instruments with a Macaulay duration of the portfolio between three and four years. However, you should check the portfolio duration of the scheme to ensure that it matches your investment horizon.

  • 7.78%Annualized Return for 3 year
  • >3 years Suggested Investment Horizon
  • 8.3 YearsTime taken to double money
  • 7.95%Annualized Return for 3 year
  • >3 years Suggested Investment Horizon
  • 8.8 YearsTime taken to double money
These schemes have been largely ignored by advisors and investors in the last two years, as everyone was playing it safe by taking refuge in short term debt funds. In fact, very few advisors talk about medium duration funds. All the talks are centered on short duration schemes, with some bravehearts also talking about long-term debt funds. However, investors with a little longer investment horizon of four years or so can consider investing in medium duration schemes. However, investors should be ready to go through the pain of rising interest rates in the interim period.


Rising rates are bad news for debt mutual fund schemes, especially the medium- and long-term debt schemes. Long-term bond prices are extremely sensitive to interest rate changes. When the interest rate goes up, the demand for these bonds goes down and their prices fall. Falling bond prices drag down the Net Asset Value (NAV) of these schemes.

If you are planning to invest for three to four years and looking for medium duration debt schemes, here are some schemes we have chosen for you. We will update you on the performance of these schemes every month.

Best medium duration debt funds to invest in 2020
  • IDFC Bond Fund Medium Term Plan
  • SBI Magnum Medium Duration Fund
  • Axis Strategic Bond Fund
  • HDFC Medium Term Debt Fund

Methodology

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ETMutualFunds.com 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 equals to 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.

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ii)When H is less than 0.5, the series is said to be mean reverting.

iii)When H greater than 0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series

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3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X equals Returns below zero
Y equals Sum of all squares of X
Z equals Y/number of days taken for computing the ratio
Downside risk equals 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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