Best Medium Duration Mutual Funds

Debt funds are basically categorized based on their maturity, and medium-duration funds similarly fall under debt funds. Medium duration mutual funds are open-ended debt mutual funds mandated to invest in securities with a maturity period of 3 to 4 years. These funds carry the inherent risks of debt funds but are also known to provide better returns than low-duration funds. 

You can find some of the best medium duration debt funds in 2025 in the table provided below.

These funds are found to be the most suitable to:

1. Medium Risk-Appetite Investors

These funds come with risks attached to them, but interest and credit risks are present by default in any mutual fund. These funds somehow hold a moderate or medium risk factor associated with them, which can suit investors who seek to be vulnerable to medium risks. 

2. Investors with a Medium Investment Horizon

Investors who want to stay invested for a medium duration (from 3 to 5 years) can easily invest in these funds and also benefit from them. Although the returns are not guaranteed, they are known to be least affected by market movements and provide predictable returns during this duration. 

The major factors you will have to look into before finding and investing in the best medium duration debt funds are:

1. Financial Objectives: When investing, it is best to invest with an investment or financial goal in mind. The investment tenure, investment aim, and risk tolerance levels of the investor all play a significant impact in fund selection. As a result, it is critical to invest in funds that are properly aligned with the investor's financial goals.
2. Credit Ratings: Investors should consider the credit ratings of the securities in which the medium-term fund invests. This aids in determining the level of default risk. If the medium-term fund invests in too many low-rated assets, the fund's credit risk is considerable.
3. Duration of the Investment: The investment duration is a crucial factor that has to be kept in mind throughout this investment. Every investment has a different timeline, and though the debt category would not require a long time, medium-duration funds have a Macaulay period between 3 to 4 years. Only if your investment time horizon aligns with this should you start investing in the fund.

Here are some notable advantages of investing in the best medium duration mutual funds –

Low-risk option: Medium duration funds involve less risk than pure equity schemes and equity-oriented MFs. Thus, they are suitable to dilute the concentrated stake in a portfolio and hedge against market volatility. 

Suitable for long-term investors: Best medium duration mutual funds suit a mid-to-long-term approach. They can be an ideal choice if you are searching for an investment option with higher returns than bank deposits and less risk than equity funds.

Mode of investments: You can invest in a medium duration mutual fund scheme of choice via SIP or lump sum method. In SIP or Systematic Investment Plans, you need to pay a specified amount at regular intervals. It can be a monthly, half-yearly, or quarterly system, depending on your preference. As for the lump-sum method, it is self-explanatory. The amount for both approaches can vary from one scheme to another. In most cases, the minimum SIP amount is Rs.500, and the lump-sum amount is Rs.1000.

The risks that come along with this fund are:

1. Costs: Returns from these funds are lower than they are from equity funds, which makes it important to invest in funds with lower costs (such as expense ratios). These costs can be exit loads, expenses of managing your fund, and more, but they can chip off your medium returns. 
2. There is no Guaranteed Return: Just like any other mutual fund, this fund is also exposed to the market. Frequently, these funds are mistakenly known to be risk-free. This is not true; although they are slightly affected by the market, they can still witness fluctuations. 
3. Liquidity Risks: These funds can only show you good returns when you stay invested for a medium tenure, which means earlier sell-outs could possibly give you a drop in the value of the units you hold.