Long Duration Mutual Funds

A long duration fund is a debt fund whose portfolio must keep a Macaulay duration above 7 years, and SEBI puts no maximum on it.

A mutual fund is a pool of money from many people, invested by a professional manager under SEBI rules. A long duration fund is a debt fund. It lends to governments, banks or companies by buying their bonds and similar paper.

Macaulay duration is the average time, in years, until you get a bond's payments back, weighted by what each payment is worth today. SEBI measures it for the whole portfolio, not bond by bond. Our debt funds guide covers it at more length.

SEBI's rule for the category is a single line: the portfolio's Macaulay duration must be “greater than 7 years”. So SEBI sets a floor of 7 years and no ceiling. The medium and medium to long duration bands allow a lower range in an anticipated adverse situation. This one has no such exception.

SEBI renamed these categories in February 2026, and fund houses had until 26 August 2026 to rename their schemes. This category is now the Long Term Fund, a name with nothing to do with how your gain is taxed.

General debt rules apply too. The fund must keep at least 10% of net assets, its total value, in cash or government securities. No more than 20% may go into one sector, with government paper outside that cap. There is no minimum credit rating; the fund's PRC cell, explained next, caps its credit risk.

There is no lock-in, a period during which you cannot sell at all.

Its duration must stay above 7 years, so a long duration fund can only sit in Class III, the PRC's third row. That row allows any duration.

The Potential Risk Class (PRC) is a grid of 9 cells that every debt scheme is placed in. Its three rows cap duration. Class I stops at 1 year. Class II stops at 3 years. Class III has no limit, and a portfolio running past 7 years fits nowhere else.

The three columns cap credit risk, the chance that a borrower pays late or does not pay back. Each holding gets a credit risk value: 13 for government paper, 12 for AAA bonds, the top rating, lower for weaker ratings. Class A needs an average of 12 or more, Class B 10 or more, and Class C is below 10.

So a long duration fund's cell always begins “Relatively High interest rate risk”. The fund house picks the credit column. The cell must be printed in bold near the scheme name on the application form and the scheme document.

The cell is a ceiling; the fund may take less risk than it allows. A move to a riskier cell counts, in SEBI's rules, as a fundamental attribute change, meaning one of the scheme's basic features has changed. The fund must tell you in writing; email or SMS is allowed. You may then sell at the day's NAV, the price of one unit, free of any exit load. An exit load is a fee some funds charge if you sell within a set time after buying.

Every listed long duration fund read Moderate on 29 September 2026. That is level three of six on the riskometer, the risk label SEBI makes every fund show, running from Low to Very High.

SEBI scores the whole portfolio on credit, interest-rate and liquidity risk, averages the three, and maps the result to one of six levels.

• Interest-rate risk is the chance that a change in interest rates changes the value of the bonds a fund holds. Its score follows Macaulay duration, from 1 up to 6. Anything above 4 years scores 6, the top score, so every long duration fund scores 6 here.
• Liquidity risk is the chance that a fund cannot sell a holding quickly at a fair price.

Take a portfolio of only government bonds. It scores 1 for credit, the lowest credit score, 1 for liquidity and 6 for interest rate. The average is about 2.7, and SEBI maps any average over 2, up to 3, to Moderate.

Rates and bond prices tend to move in opposite directions. When interest rates rise, bond prices tend to fall; when rates fall, prices tend to rise. SEBI's investor website says so. A fund's value follows the prices of the bonds it owns, and SEBI treats a longer duration as more interest-rate risk.

The level is re-checked every month. Any change must reach the scheme's investors by email or SMS.

Koshex is a distributor, a registered intermediary (AMFI registration ARN-154632) that helps you buy and manage funds. Over time, we review your holdings and flag it if a fund's risk level, category or ranking moves.

A gilt fund is defined by who it lends to, the government; a long duration fund by how long its portfolio runs.

• Gilt fund. At least 80% in government securities issued by the central or a state government, of any maturity. No duration band.
• 10-year constant maturity gilt fund. At least 80% in the same securities, held so that the portfolio's Macaulay duration equals exactly 10 years.
• Long duration fund. Portfolio duration above 7 years. No minimum credit rating; its PRC cell caps its credit risk.

The cash rule differs too. Both kinds of gilt fund are exempt from the 10% liquid-assets rule. A long duration fund must keep at least 10% of net assets in liquid assets such as cash and government securities.

On the riskometer the two sit close. Every listed long duration fund read Moderate on 29 September 2026, and most listed gilt funds did too. In the funds on this list at the end of August 2026, long duration funds held almost nothing but government bonds and a little cash.

That was the funds' choice, not a SEBI rule. A long duration fund is not required to hold government paper.

For a gilt fund, Koshex suggests 5 years or more, and 10 years for the constant maturity type. A medium to long duration fund keeps duration between 4 and 7 years. There, our suggestion is 4 years or more.

Koshex suggests a long duration fund for money you can leave alone for 7 years or more. SEBI sets no horizon; this is our view, and it is the longest we give for any duration fund.

In our view, money you need sooner fits a shorter duration category better.

On the practical side:

• When you sell, SEBI gives the fund 3 working days at most to pay you. Same-day instant access is allowed only in overnight and liquid schemes.
• SEBI does not set an exit load for this category. Each fund sets its own, if any, in its scheme document; many charge none. There is no lock-in.

Through Koshex you buy the regular plan, which is the version bought through a distributor, who helps you choose and stays with you afterwards. We can help you pick a fund that suits your goal and timeline. When markets fall sharply, we talk you through it before you redeem.

If you bought units before 1 April 2023 and have held them more than 24 months, the gain is taxed at 12.5% without indexation. Newer units, bought on or after that date, go at your slab rate, the rate on your normal income, for any holding period.

That split rests on section 76 of the Income-tax Act, 2025. A long duration fund is a Specified Mutual Fund, because more than 65% of it is in debt and money market instruments. Its newer units always give a short-term capital gain, the kind taxed at your slab rate. The holding period, the time between buying a unit and selling it, makes no difference to them.

Older units held 24 months or less are also taxed at your slab rate. Held longer, they get 12.5% without indexation, so the purchase price gets no lift for inflation.

An illustration, not a forecast: suppose you sell two lots in September 2026, each with an assumed gain of ₹1,30,000. Cess adds 4% to the tax. We assume no surcharge, which applies only once total income passes ₹50 lakh.

• Lot bought in January 2020, held more than 24 months: 12.5% is ₹16,250, plus ₹650 cess, so ₹16,900.
• Lot bought in August 2023, top slab 20%: ₹26,000, plus ₹1,040 cess, so ₹27,040.
• Same lot, top slab 30%: ₹39,000, plus ₹1,560 cess, so ₹40,560.

The ₹1,25,000 yearly exemption on long-term gains is for equity-oriented funds; it does not apply here.

A switch to another scheme counts as selling the old units and buying new ones. New units bought now are taxed at your slab rate, so switching old units gives up the 12.5% treatment.

There is no TDS, tax deducted at source before money reaches you, when a resident redeems. IDCW is different. It is a payout drawn from the fund's income or gains. Paying it lowers the NAV by the same sum. It is taxed at your slab rate. Once your IDCW from a fund house crosses ₹10,000 in a tax year, it deducts 10% TDS on the whole amount. TDS is credited against your tax for the year.

Only funds with a 3-year record are ranked on 3-year return and counted in the averages: 7 of the 11 listed long duration funds. The AUM, 1-year and 5-year tabs rank every listed fund with that figure. The table shows the top 10.

Across the funds with a 3-year record, the average return was 0.7% over one year and 3.1% a year over three. The 3-year figure is a CAGR, the average yearly growth rate over the period. Both describe the past only.

Also read:

• AUM: the current value of what a fund manages (assets under management), not what people paid in. The listed funds' combined AUM is ₹11,474 Cr.
• Expense ratio, the fund's yearly fee, shown as a percentage of your money and taken out of the fund's value.
• Riskometer, beside any return.

The PRC cell sits in bold beside the scheme name in each fund's documents. Under SEBI's rules, a fund house may run just one scheme in this category.

A lumpsum is a larger amount invested at one time. By contrast, a SIP invests a fixed amount at regular intervals, usually monthly. Each SIP instalment buys units at that day's NAV and has its own holding period. Any unit bought today is taxed at your slab rate.