Medium Duration Mutual Funds

Medium duration funds are debt funds whose portfolio must keep a Macaulay duration of 3 to 4 years in normal times. SEBI allows one exception, for bad markets, covered next.

A mutual fund is a pool of money from many people, invested by a professional manager under SEBI rules. In a debt fund that money is lent out: the fund buys bonds and similar paper from governments, banks and companies.

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 works it out for the portfolio as a whole. The debt funds guide explains it in full.

In February 2026 SEBI gave these categories new names. Fund houses had until 26 August 2026 to rename existing schemes, and this category is now the Medium Term Fund.

The rule speaks only of duration. It sets no minimum credit rating. The fund still answers to the general debt limits:

• At least 10% of net assets, the fund's total value, must sit in cash, government securities (G-secs), treasury bills and repo on G-secs.
• At most 20% of net assets may go to one sector.
• Each borrower has a cap tied to its credit rating, explained further down.

These are open-ended schemes with no lock-in, a stretch of time during which you cannot sell.

Only when the fund manager expects what SEBI calls an “anticipated adverse situation”, and never below 1 year. The portfolio may then run anywhere from 1 to 4 years.

The call is the manager's, made “in the interest of investors” when he has a view on interest rates. SEBI does not define an adverse situation, and sets no time limit on it.

The freedom comes with paperwork:

• The fund house must state, in the scheme information document (SID), how it would invest in such a situation. The SID is the fund's official rulebook.
• Each time duration goes under 3 years, it must record the reasons, with justification, and keep them for inspection.
• Those reasons go before the trustees at their next meeting. The trustees also review the portfolio and report on it to SEBI in their half-yearly trustee report.

The trustees are a separate company. It holds the fund's money and investments in trust for you, and checks that the fund house keeps to SEBI's rules.

Only one other debt category has this escape hatch: medium to long duration funds, which may drop from their 4-year floor to 1 year. Short duration funds have a single band of 1 to 3 years and no exception.

For you, it means a fund you hold may run shorter than its name suggests.

In the normal band, duration gives every fund here the same interest-rate score, so credit and liquidity decide the rest. More than half of listed medium duration funds read Moderately High on 29 September 2026; most of the rest read Moderate. None of the other five duration categories on Koshex showed as wide a spread that day.

The riskometer is the risk label SEBI makes every fund show. It has six levels, from Low to Very High, and each fund re-checks it every month.

For a debt fund, SEBI's formula scores the whole portfolio on three risks:

• Interest-rate risk, the chance that a change in interest rates changes the value of the bonds held. Its score follows Macaulay duration, from 1 up to 6.
• Credit risk, the chance that a borrower pays late or does not pay back.
• Liquidity risk, the chance the fund cannot sell a holding quickly at a fair price.

SEBI averages the three scores and maps the result to a level. If the liquidity score is higher than that average, it is used instead.

In its normal band, a medium duration fund scores 5 out of 6 on the interest-rate part. A short duration fund, at 1 to 3 years, scores 3 or 4. So within this category, the paper held is what separates a Moderate fund from a Moderately High one.

SEBI's investor website says that when interest rates rise, bond prices may fall, and the other way round. A fund's unit price follows its bonds.

A fund's level can move. It is published within 10 calendar days of each month-end, and unitholders must be told of a change by email or SMS.

Lower-rated bonds push the riskometer up, while top-rated paper keeps it at Moderate.

A credit rating is a rating agency's opinion of how likely a borrower is to repay in full and on time. AAA sits at the top, with the highest degree of safety. AA stands for a high degree, and A an adequate one. A rating is an opinion, not a promise, and it can change quickly.

These worked illustrations of SEBI's formula describe no particular fund. “Plain” means a listed bond with no special structure or add-on features.

• G-secs, state government loans or AAA paper from public sector issuers: (1 + 5 + 1) ÷ 3 = 2.33. That is Moderate.
• Listed plain AAA corporate bonds: (1 + 5 + 2) ÷ 3 = 2.67. Still Moderate.
• Listed plain AA bonds: (3 + 5 + 4) ÷ 3 = 4.0. That is Moderately High.
• Listed plain AA- bonds average 4.67. Their liquidity score of 5 is higher, so 5 is used, and the level is High.

SEBI also limits lending to any one borrower. For every ₹100 in the fund, at most ₹10 may go to one AAA-rated borrower. The cap is ₹8 for one rated AA and ₹6 for one rated A or lower. The fund house's board and the trustees can approve up to 2% more. Government securities fall outside these caps.

Every debt fund also sits in one of 9 cells on SEBI's Potential Risk Class (PRC) grid. The cell is a ceiling on duration and credit risk, picked by the fund house and printed near the scheme name.

Koshex reviews your holdings over time and flags it when a fund's risk level or category shifts.

It can be. Koshex suggests a medium duration fund for money you can leave alone for 3 to 4 years or more, matching the normal duration band.

A goal one to three years off lines up with short duration funds, which SEBI now calls Short Term Funds. Beyond four years, medium to long duration funds run a duration of 4 to 7 years.

Plan around how money comes out. There is no same-day access; SEBI allows that only in overnight and liquid schemes. When you sell, the fund has up to 3 working days to pay you.

An exit load is a fee some funds charge if you sell within a set time after buying. SEBI fixes none for medium duration funds. Each scheme decides whether to have one and writes it into its scheme document. Many have none.

Koshex offers the regular plan, the version of a fund bought through a distributor. A distributor is a registered intermediary that helps you buy and manage funds; Koshex holds AMFI registration ARN-154632. We help you choose a fund that suits your goal and timeline. If markets fall sharply, we talk it through with you before you redeem.

If you bought the units on or after 1 April 2023, the gain is taxed at your slab rate, even after three years. Your slab rate is the rate charged on your normal income.

This comes from section 76 of the Income-tax Act, 2025. A medium duration fund holds more than 65% in debt and money market instruments, which makes it a Specified Mutual Fund. Gains on its units bought from 1 April 2023 count as short-term, whatever the holding period. That is how long you owned a unit, from purchase to sale.

Take an assumed gain, not a forecast. Suppose you bought units in June 2023 and sell them in September 2026 for ₹57,000 more than you paid. Cess, an extra 4% charge on the tax, is added. We assume no surcharge, a further charge that applies only once total income passes ₹50 lakh.

• Top slab of 20%: ₹11,400 in tax plus ₹456 cess, so ₹11,856.
• Top slab of 30%: ₹17,100 in tax plus ₹684 cess, so ₹17,784.

Units bought before 1 April 2023 follow the older line. Sold within 24 months of purchase, the gain is a short-term capital gain, taxed at slab rate. Held longer, it is a long-term capital gain, taxed at 12.5% without indexation, so with no inflation adjustment to your cost.

No TDS, tax deducted at source before money reaches you, applies when a resident redeems.

IDCW is taxed differently. These are payouts from the fund's income or gains, and they reduce the NAV, the price of one unit, by the amount paid. IDCW is taxed at slab rate as part of your income. Once your IDCW from a fund house crosses ₹10,000 in a tax year, it deducts 10% TDS on the whole amount. That TDS is credited against your tax for the year.

Read each fund's return beside its riskometer level, then look at duration, costs and size. There are 14 listed medium duration funds, holding ₹24,913 Cr between them. The table shows the top 10 for the ranking you pick. Of the 14, 14 have a 3-year record, so only those are ranked on 3-year return and counted in the averages.

• 3-year and 5-year CAGR. CAGR is the average yearly growth over a period, as if the fund grew at an even pace. The simple averages are 6.4% over 3 years and 6.7% over 5, taken over funds with a 3-year record. Both describe the past.
• Riskometer. Returns here differ a lot from fund to fund. Compare each one with the fund's riskometer level.
• Expense ratio. The fund's yearly fee, shown as a percentage of your money and taken out of its value.
• AUM. Assets under management: the current value of all the money a fund manages, not what people paid in.
• Duration. Fund factsheets usually show the portfolio's Macaulay duration. A figure under 3 years is allowed only under the adverse-situation exception, and never under 1 year.

The list also takes in a few funds of funds, which invest in other debt funds. SEBI treats funds of funds as a separate category with its own rules.

A lumpsum puts in a larger amount at one time. A SIP invests a fixed amount at regular intervals, usually monthly. Each instalment buys units at that day's NAV and has its own holding period.