Best medium duration mutual funds to invest in 2023

Most mutual fund investors stick to liquid funds, ultra short term funds, short term funds, banking & PSU funds, corporate funds, etc. to take care of their short-term needs. Most of them might know about gilt funds. Even though they may not invest in them. However, many investors are not aware of medium duration funds.

As per Sebi mandate, medium duration funds must invest debt in and money market instruments with Macaulay duration of three and four years. As you can see, these schemes are suitable for investors looking to invest for three to four years or more. However, you should check the portfolio duration of the scheme to ensure that the scheme is in line with your investment horizon.

Most mutual fund advisors do not recommend medium and long term debt schemes to regular investors. These schemes are extremely sensitive to changes in the interest rate environment. They suffer when the rates go up. Mutual fund advisors say many conservative investors would find it difficult to handle the volatility faced by these schemes.


As you know interest rates have been going up. The RBI might raise interest rates again this year before it may pause. So, you should invest in these schemes only if you have the nerve to face volatility. Perhaps you may also suffer some short-term losses. However, if you have the patience, you might pocket attractive returns once the interest rates start coming down. In fact, many investment advisors believe that debt schemes, especially medium and long-term funds, will offer better returns in 2023.

In short, if you are looking for a debt mutual fund where you can park money for four years or more and ready to take some risk and volatility, you can consider investing in medium duration funds. Be forewarned, these schemes are likely to be volatile because interest rates are likely to go up further in the coming months. The RBI is likely to raise rates again to contain inflationary pressure in the economy.

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