These mutual funds invest in the debt securities of different issuers and generally, the average maturity of the overall portfolio of medium-term debt funds remains 3-4 years.
The fund manager of a medium duration fund selects money market instruments and debt securities according to the investment objective of the fund ensuring that the Macaulay duration is between 3 and 4 years.
These funds are best suited for investors who want to meet certain financial goals in 3 years and are a good alternative to bank deposits. The average returns of these funds range between 7 and 9%. However, due to higher macaulay duration, it might be volatile on interest rate changes in the prevailing market.
The minimum investment varies from scheme to scheme. It could range between Rs.100/ – to Rs. 5,000/ -.
• If an investor has made an investment in a debt mutual fund and withdraws the amount before 3 years of investment, Short Term Capital Gains Tax would be levied, as per the income tax slab of the investor.
• If an investor withdraws the investment including capital gains post 3 years of investment, 20% Long Term Capital Gains Tax of 20% is levied, with the benefit of indexation.