Best Low Duration Mutual Funds in India (2026)
Low duration mutual funds invest in debt securities with an average portfolio duration of 6–12 months, as defined under SEBI’s mutual fund categorisation framework.
These funds aim to provide relatively stable returns while keeping interest rate risk lower than longer-duration bond funds.
Top 10 Best Low Duration Mutual Funds in India Based on Returns, Ranks & AUM
AUM Growth of Low Duration Mutual Funds - March 2026
In the past one month, the Kotak Low Duration Fund- Direct Plan- Growth Option has emerged as the leader in net AUM growth, witnessing an impressive addition of ₹1.61K crore. This positions it as one of the top-performing Low Duration mutual funds in terms of investor interest and fund growth.
Fund | 1M Net Flow | 1M Net Flow % | Action |
|---|---|---|---|
 Kotak Low Duration Fund Current AUM: 16.39K Cr | +₹1.61K Cr | 10.21% | Invest |
 HDFC Low Duration Fund Current AUM: 25.58K Cr | +₹576.53 Cr | 2.34% | Invest |
 Nippon India Low Duration Fund Current AUM: 10.97K Cr | +₹397.07 Cr | 3.82% | Invest |
 Mirae Asset Low Duration Fund Current AUM: 2.72K Cr | +₹278.05 Cr | 10.85% | Invest |
 LIC MF Low Duration Fund Current AUM: 2.02K Cr | +₹141.03 Cr | 7.28% | Invest |
Sector allocation of Low Duration mutual funds - March 2026
Over the last 6 months, Low Duration category has seen increased allocation towards Utilities, Basic Materials, Energy sectors and allocation in Securitize, Industrial, Health sectors has decreased
Sector | AUM |
|---|---|
 Financial Services Increased by 4.32%, in last 6M | 56.5K Cr |
 Basic Materials Increased by 10.47%, in last 6M | 22.45K Cr |
 Utilities Increased by 15.54%, in last 6M | 12.34K Cr |
 Energy Increased by 9.16%, in last 6M | 5.15K Cr |
 Consumer Defensive Decreased by 10.50%, in last 6M | 1.18K Cr |
 Industrial Decreased by 16.33%, in last 6M | 892.78 Cr |
 Health Decreased by 15.11%, in last 6M | 38.4 Cr |
 Consumer Cyclical Decreased by 15.11%, in last 6M | 37.65 Cr |
 Tech Decreased by 15.11%, in last 6M | 26.88 Cr |
 Securitize Decreased by 100.00%, in last 6M | 0 Cr |
What Are Low Duration Mutual Funds and How Do They Work?
Low duration mutual funds are debt schemes that invest in short-term fixed-income instruments.
These instruments may include:
- corporate bonds
- government securities
- treasury bills
- commercial papers
- certificates of deposit
Because the securities typically have shorter maturities, these funds are generally less sensitive to interest rate changes compared with long-duration bond funds.
Low duration funds are commonly used by investors looking to park money for around 6 months to about 18 months.
SEBI's Classification Rule for Low Duration Mutual Funds
Under SEBI’s mutual fund categorisation framework, low duration funds are defined by their portfolio duration range.
Key rules include:
- The portfolio must maintain a duration between 6 and 12 months
- Each asset management company (AMC) can offer only one scheme in this category
- Funds may invest in a mix of short-term bonds and money market instruments
These rules help maintain consistency across funds in the category and make it easier for investors to compare schemes.
How Do Low Duration Mutual Funds Generate Returns?
Low duration funds generate returns mainly from income earned on the debt instruments in the portfolio.
1. Interest income
Bonds and money market instruments held by the fund generate regular interest payments.
2. Bond price movement
Changes in interest rates can affect bond prices. When interest rates fall, bond prices may rise. When rates increase, bond prices may decline.
Because these funds invest in relatively short-duration securities, their NAV typically experiences lower volatility than longer-duration debt funds.
Who Should Invest in Low Duration Mutual Funds?
Low duration mutual funds may be suitable for investors seeking relatively stable returns over a short-to-medium-term horizon.
They may be appropriate for:
- Investors with an investment horizon of about 6–18 months
- Investors looking for returns potentially higher than savings accounts
- Investors seeking lower interest rate risk compared with longer-term debt funds
These funds may also be used as part of a diversified portfolio alongside equity investments.
However, they may not be suitable for:
- Investors seeking high long-term capital appreciation
- Investors with very short investment horizons
- Investors expecting guaranteed returns
Investors should evaluate their financial goals, risk tolerance, and investment horizon before investing.
Advantages of Low Duration Mutual Funds
Low duration funds offer several features that may appeal to conservative investors.
- Lower interest rate sensitivity
Because the portfolio duration is limited to 6–12 months, interest rate movements usually have a smaller impact on returns.
- Income generation
Interest payments from bonds can provide relatively steady income.
- Short-term investment option
These funds are often used for parking surplus funds for short periods.
Risks of Low Duration Mutual Funds
Despite their relatively stable structure, these funds still involve certain risks.
- Credit risk
If a bond issuer faces financial difficulties or a credit downgrade, the value of the bond may fall.
- Interest rate risk
Changes in interest rates may affect bond prices and fund NAV.
- Market risk
Debt market liquidity and economic conditions may influence fund performance.
Investors should consider these risks before investing.
Frequently Asked Questions
What is a low-duration fund, and how does it differ from longer-duration funds?
A low-duration fund is a type of debt mutual fund that invests in securities with a portfolio duration of 6 to 12 months, offering relatively stable returns with low interest rate risk. In contrast, longer-duration funds invest in securities with maturities beyond 12 months, which exposes them to higher interest rate risk due to longer exposure to market interest rates.
How do low-duration funds work?
Low-duration funds invest primarily in short-term debt securities, such as government bonds and AAA-rated corporate securities. These funds aim to reduce interest rate sensitivity by maintaining a short fund duration, ensuring stability in fund value even during fluctuating market interest rates.
How are low-duration funds different from ultra-short-duration funds?
Low-duration funds maintain a portfolio duration of 6 to 12 months, whereas ultra-short-duration funds invest in securities with a duration of 3 to 6 months. As a result, ultra-short-duration funds are more suited for very short-term goals but may offer slightly lower returns compared to low-duration funds.
Are low-duration funds better than overnight or liquid funds for short-term investments?
Overnight or liquid funds are even more conservative options, with their investments maturing in one day or up to 91 days. While these funds offer higher liquidity and lower risk, low-duration funds provide a balance of low risk and slightly higher returns for those with an investment horizon of 6 to 12 months.
Do low-duration funds invest in risky securities?
Most low-duration funds invest primarily in high-quality, AAA-rated or government securities, making them less risky. While they may also invest in AA-rated or lower securities, the overall risk is still lower compared to funds with longer durations, which are more sensitive to interest rates.
Can low-duration funds provide dividend income?
No, a low-duration mutual fund doesn't provide dividend income. It provides regular interest payments depending on the type of fund you choose.
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