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5 Best Long Duration Debt Mutual Funds

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Created on
August 24, 2022


What’s Inside

Most people assume that investing in long-term debt mutual funds is not a safe option. The misconception is that they will lose their hard-earned money. This is only partially true. Debt mutual funds have underlying assets that are linked to the market, and the prices of these assets fluctuate depending on the market, which in turn affects the long-term capital gain on debt mutual funds. This is what makes these funds risky. But the kind of assets that debt mutual funds invest in are assets which have historically offered fixed returns and government-backed securities, making them a relatively safe investment.

Let’s look at the 5 best long-duration debt mutual funds to know more. 

What are Long-term Debt Mutual Funds?

Long-term debt mutual funds are funds that invest in fixed income products with the possibility for capital growth, such as corporate bonds, treasury bills, government bonds, and bank bonds for a longer tenure. These investments provide several benefits, such as a low-cost structure, high liquidity, excellent financial safety, and higher returns. These debt mutual funds have a maturity period of greater than 36 months. 

Top 5 Long Duration Debt Mutual Funds

Here’s a closer look at the 5 best long-term debt mutual funds in 2022.

Advantages of Long-term Debt Mutual Funds

Here is the list of advantages associated with long-term debt mutual funds.

Higher Returns

Compared to other debt funds, these mutual funds may provide you with opportunities to receive higher returns.

Financial Stability

The majority of the gains made by investors in debt mutual funds originate from the interest and maturity value of the underlying fixed-income assets. Debt funds offer a steady and predictable cash flow without the risk of market volatility as the interest rate and maturity value are both fixed.

Tax Efficiency

Long-term capital gains on debt mutual funds are more tax-efficient than traditional investment options such as fixed deposits. The interest income from FDs is taxed on a yearly basis. Long-term debt mutual funds, on the other hand, are taxed in the year they are withdrawn.

Portfolio Consistency

Since a large component of the financial fund is invested in debt instruments, stock market volatility has less influence on returns.

Taxation of Long-term Debt Mutual Funds

The process of long-term capital gain tax on debt mutual funds is identical to other debt investments. After a holding period of 36 months or more, long-term capital gains are subject to indexation at a rate of 20%. The advantage of indexation makes it easier to increase the long-term bond's buying price to account for inflation. Your taxable income is increased by the dividends received from long-term investments. If you fall into one of the higher income tax bands, you might be able to generate an income that is more tax-efficient than bank fixed deposits.

Risks Associated with Long-term Debt Mutual Funds

Below are the details about different risks associated with long-term gains on debt mutual funds. 

Credit Risk

You will receive larger returns from long-term investments, but they may also be impacted by the credit risk. Credit risk is the possibility that a borrower won't pay back the principal amount or interest on time. The credit ratings of an investor are used to evaluate credit risk. Credit rating agencies examine an investor's entire financial soundness to determine an investor's creditworthiness. Higher grades indicate that a person is less likely to miss a payment and vice versa. Hence, maintaining good financial health will help you to avoid these kinds of risks. 

Interest Risk

Compared to medium and short-duration funds, long-term debt mutual funds are more susceptible to interest rate risk. Due to the fact that the majority of its corpus is invested in longer-term bonds, it is vulnerable to fluctuations in interest rates. Bond prices decline as long-term investments are impacted by the possibility of rising interest rates.

Things to Consider Before Investing in Long-term Debt Mutual Funds

Before investing in long-term debt mutual funds, below are a few things that you must keep in your mind.

Return on Investments

Searching for consistency in returns would be advantageous if you are looking for long-term gains on debt mutual funds investment. Choose investments that have consistently outperformed benchmarks and rival funds throughout a range of time frames. Assess the financial situation corresponding to your investment horizon to acquire good and advantageous results. Consider investing in long-term funds with a three- to five-year time scale.

Examine the History of the Company

Choose investment fund providers with a track history of consistent success. Make sure the company you choose has a demonstrated long history of providing profitable investment returns.

Categorisation of Funds

Long-term debt mutual funds are generally classified into four types: corporate bonds, treasury bills, government bonds, and bank bonds. These funds each have their unique significance and advantages. As a result, in order to maximise your gains, you must understand your needs and invest in a suitable option.

Financial Objectives

Investing in long-term debt mutual funds can provide you with additional income, improved liquidity, increased financial stability, etc. However, you should only invest in long-term funds if you are committed to staying involved for the long haul. By doing so, you might be able to meet your long-term financial objectives. Before investing, ensure the chosen option will yield sufficient financial returns to meet your needs.

In a nutshell

Among the several choices available to invest in, selecting the best option is extremely important in order to maximise your returns. Always remain aware of your risk appetite, goals and time horizon needed to make the most of these funds. With Fi Money (and its Mutual Fund filters), finding the right long-term debt mutual funds online has become easier. Fi is here to demystify personal finance and help you manage your money better


Which debt fund is best for the long term?

Financial institutions offer a variety of investing opportunities. You must compare each fund's features and benefits to find the best long-term debt mutual funds. You must also know your goals and risk tolerance to find the best funds.

Is it good to invest in debt funds for the long term?

Investing in long-term debt mutual funds will provide you with additional income, financial stability, higher returns, and so on. However, there are a few risks associated with these kinds of investments. Therefore, before investing, you must be aware of these risks. 

What are the long-duration debt funds?

Long-term debt mutual funds are investments that are done in fixed income instruments with the potential for capital appreciation over a longer period of time, such as corporate bonds, treasury bills, government bonds, and bank bonds. These investments have several advantages, including a low-cost structure, great liquidity, good financial safety, and higher returns. Usually, these debt mutual funds have maturities of more than 36 months.


Investment and securities are subject to market risks. Please read all the related documents carefully before investing. The contents of this article are for informational purposes only, and not to be taken as a recommendation to buy or sell securities, mutual funds, or any other financial products.
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5 Best Long Duration Debt Mutual Funds


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