As per Sebi categorisation, medium duration schemes must invest in debt and money market instruments with a Macaulay duration of the portfolio between three and four years. However, you should check the portfolio duration of the scheme to ensure that it matches your investment horizon.
These schemes have been largely ignored by advisors and investors in the last two years, as everyone was playing it safe by taking refuge in short term debt funds. In fact, very few advisors talk about medium duration funds. All the talks are centered on short duration schemes, with some bravehearts also talking about long-term debt funds. However, investors with a little longer investment horizon of four years or so can consider investing in medium duration schemes. However, investors should be ready to go through the pain of rising interest rates in the interim period.
If you are planning to invest for three to four years and looking for medium duration debt schemes, here are some schemes we have chosen for you. We will update you on the performance of these schemes every month.
Best medium duration debt funds to invest in 2020
- IDFC Bond Fund Medium Term Plan
- SBI Magnum Medium Duration Fund
- Axis Strategic Bond Fund
- HDFC Medium Term Debt Fund
ETMutualFunds.com 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 equals to 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 is less than 0.5, the series is said to be mean reverting.
iii)When H greater than 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 equals Returns below zero
Y equals Sum of all squares of X
Z equals Y/number of days taken for computing the ratio
Downside risk equals 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.)