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.
Please watch out for monthly updates so that you can keep track of your schemes.
Best medium duration schemes to invest in 2023
- SBI Magnum Medium Duration Fund
- HDFC Medium Term Debt Fund
- IDFC Bond Fund Medium Term Plan
- Axis Strategic Bond Fund
Methodology:
ETMutualFunds 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 = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii)When H
iii)When H>0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = 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.)
