Medium Duration Debt Funds in India for 2025: Taxation, Benefits and Risks
There are around twenty debt mutual fund categories in India, and Medium Duration Funds are one of them. These funds invest in bonds and other fixed-income instruments with a Macauley duration of four to seven years. This means the securities they hold are expected to mature within this time frame, giving the fund a moderate level of interest-rate sensitivity. Let’s take a look at some of the top medium duration funds in India, along with taxation, benefits and risks associated with them.
Top Medium Duration Funds
Here is the list of the top medium-term debt funds along with their 5Y and 3Y CAGR, AUM, expense ratio, volatility and more.
| Name | CAGR 5Y(% | CAGR 3Y(%) | AUM (Rs. in cr.) | Expense Ratio(%) | Volatility(%) | NAV (₹ per unit) |
|---|---|---|---|---|---|---|
| Aditya Birla SL Medium Term Plan | 13.28 | 10.42 | 2806.88 | 0.82 | 2.55 | 44.66 |
| Nippon India Medium Duration Fund | 9.56 | 9.11 | 123.63 | 0.52 | 2.56 | 17.51 |
| Kotak Medium Term Fund | 7.47 | 9.22 | 2082.21 | 0.67 | 1.32 | 26.16 |
| Axis Strategic Bond Fund | 7.46 | 8.93 | 1927.79 | 0.72 | 1.14 | 31.64 |
| ICICI Pru Medium Term Bond Fund | 7.44 | 8.78 | 5756.89 | 0.74 | 1.11 | 50.79 |
| HSBC Medium Duration Fund | 7.08 | 8.69 | 782.04 | 0.4 | 1.29 | 22.87 |
| HDFC Medium Term Debt Fund | 6.92 | 8.42 | 3894.79 | 0.67 | 1.19 | 62.67 |
| SBI Magnum Medium Duration Fund | 6.65 | 8.44 | 6886.45 | 0.71 | 1.22 | 56.64 |
| UTI Medium Duration Fund | 6.58 | 7.86 | 40.68 | 0.83 | 1.18 | 19.99 |
| DSP Bond Fund | 6.27 | 8.3 | 318.23 | 0.4 | 1.22 | 89.05 |
Disclaimer: Please note that the above list of the best medium duration funds is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Mutual Fund Screener and is subject to real-time updates.
Note: The data on the list of the best medium-duration debt mutual funds is from 10th November 2025. This data is derived from the Tickertape Mutual Funds Screener.
- 5Y CAGR: Sorted from Highest to Lowest
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Overview of the Top Medium Duration Funds
Aditya Birla SL Medium Term Plan
Launched on 25 March 2009, this medium-duration debt scheme is offered by Aditya Birla Sun Life Mutual Fund under Aditya Birla Sun Life AMC. It forms part of the fund house’s fixed-income product lineup.
Nippon India Medium Duration Fund
Introduced on 26 June 2014, this Nippon India Medium Duration Fund belongs to Nippon India AMC. It is listed within the medium-duration debt category as part of the AMC’s broader debt-fund offerings.
Kotak Medium Term Fund
Launched on 21 March 2014, this Kotak Medium Term Fund is managed by Kotak Mahindra Mutual Fund. It appears in the AMC’s fixed-income range within SEBI’s medium-duration debt classification.
Axis Strategic Bond Fund
This Axis Strategic Bond Fund is offered by Axis Mutual Fund. It is placed within the AMC’s duration-linked and strategic bond offerings in the debt category.
ICICI Pru Medium Term Bond Fund
Launched on 15 September 2004, this medium-duration debt scheme is part of ICICI Prudential Mutual Fund. This fund sits in SEBI’s medium-duration debt category and forms part of the company’s wider fixed-income lineup.
HSBC Medium Duration Fund
This fund belongs to HSBC Mutual Fund under HSBC AMC. Although the launch date is not cited, it is positioned within the AMC’s debt-fund lineup, specifically in the medium-duration segment.
HDFC Medium Term Debt Fund
HDFC Mutual Fund manages this scheme as part of its debt fund family. It is grouped under SEBI’s medium-duration category, which includes funds investing in securities maturing in the medium-term bracket.
SBI Magnum Medium Duration Fund
This scheme is offered by SBI Mutual Fund, India’s oldest asset management company. It is included in SEBI’s medium-duration debt category within the AMC’s fixed-income offerings.
UTI Medium Duration Fund
UTI Mutual Fund manages this scheme as part of its debt fund portfolio. It is categorised under SEBI’s medium-duration segment, which places funds by their portfolio maturity range.
DSP Bond Fund
This fund is part of DSP Mutual Fund’s fixed-income range. It falls within SEBI’s duration-defined debt categories, which classify funds based on the maturity profile of their underlying securities.
What are Medium Duration Funds?
Medium duration funds are a category of debt mutual funds that invest in bonds and other fixed-income instruments where the Macaulay duration of the portfolio is maintained between four and seven years. Under AMFI categorisation of debt mutual funds, Medium Duration Funds are defined as open-ended schemes that invest in debt & money market instruments such that the portfolio’s Macaulay duration lies in the 3-4 years band.
How Do Medium Duration Funds Work?
Medium Duration Funds invest in bonds and other fixed-income securities that mature in about three to four years. The fund manager builds the portfolio so that the overall Macaulay duration stays within this range, as required by SEBI. Medium duration fund returns come from interest earned on these instruments and any price changes in the bond market.
Tax on Medium Duration Funds
Medium Duration Funds follow the same tax rules as other debt mutual funds. The tax you pay depends on how long you stay invested. Short-term investments are taxed as per your income slab, while long-term holdings attract a flat tax rate without indexation. Below is a simple breakdown.
| Capital Gains Tax | Description |
| Short-Term Capital Gains (STCG) | If you sell your debt fund units within three years, the gains are taxed as per your income tax slab. |
| Long-Term Capital Gains (LTCG) | If you hold the fund for more than three years, gains are taxed at a flat 12.5 percent without indexation benefits. |
How to Invest in the Best Medium Duration Funds in India?
You can easily start to invest in the top-performing medium duration funds in India by following these steps.
- To invest in medium duration debt schemes in India, you can visit an investment platform such as smallcase.
- The next step is to research and identify the medium duration fund based on your investment thesis. Tools like the Tickertape Mutual Fund Screener can help you filter and compare funds using parameters such as returns, expense ratio, and fund size.
- Once you shortlist the funds, visit smallcase, log in, and search for the fund by name. You can then choose the investment mode, either a one-time lump sum or an SIP plan, and complete the process.
Features of Medium Duration Funds
- Maturity Duration: Medium Duration Funds invest in debt instruments that generally mature in three to four years. This gives them a balance between short-term stability and longer-term return potential.
- Better liquidity: These funds usually offer easier access to money compared to long-duration funds, as their underlying securities mature sooner.
- Risk Diversification: They invest across different types of debt instruments, which helps spread risk and reduces the impact of any single issuer or market movement.
- Tax Treatment: If held for more than three years, gains are treated as long-term capital gains. The tax rules may offer benefits depending on the investor’s holding period and tax situation.
Medium-term Debt Fund Benefits
- Return Potential: Medium-term debt funds invest in bonds with maturities of about three to four years. Their aim is to provide a relatively stable income by holding a mix of government and corporate debt instruments.
- Balanced Risk Exposure: These funds carry moderate risk. They are less volatile than long-duration funds but can still react to interest rate movements. Their value may rise or fall based on market conditions.
- Professional Management: Fund managers choose a mix of government securities, corporate bonds, and money market instruments. This gives diversified debt exposure without the need to research individual bonds.
Medium Duration Fund Risks
- Interest Rate Risk: Medium-term debt funds react to changes in interest rates. When rates rise, the value of existing bonds can fall. This can cause short-term fluctuations in the fund’s NAV.
- Credit Risk: If the fund holds lower-rated corporate bonds, there is a chance that the issuer may face financial stress or default. Such events can impact the fund’s returns.
- Market Volatility in the Medium Term: Because these funds invest in bonds with maturities of around three to four years, their prices can move up or down when market conditions shift. They are not as stable as liquid or ultra-short-term funds.
- Reinvestment Risk: When bonds within the portfolio mature, the fund must reinvest the proceeds. If interest rates are lower at that time, the fund may earn less from the new investments.
Factors to Consider Before Investing in Medium Duration Funds
- Interest Rate Sensitivity: Medium Duration Funds invest in securities maturing in roughly four to seven years, which makes them moderately sensitive to interest-rate movements. A rise or fall in interest rates can influence short-term returns.
- Investment Horizon: These funds generally suit investors with a medium-term investment horizon of around four to seven years, as this aligns with the maturity profile of the underlying debt instruments.
- Credit Quality of Portfolio: Different funds invest in bonds with varying credit ratings. Reviewing the credit quality helps you understand if the fund is exposed to higher-risk corporate issuers or sticks to safer government or high-rated bonds.
- Taxation Rules: Medium Duration Funds follow debt taxation. STCG applies if held for fewer than three years and is taxed as per your income slab. LTCG applies after three years at a flat 12.5 per cent.
Who Should Consider Medium Duration Funds?
- Medium-Term Goals: People planning for expenses or milestones four to seven years away may find these funds suitable because the maturity profile aligns with this timeline.
- Portfolio Diversification: Investors looking to add a medium-duration debt layer to complement equity or very short-term debt holdings may explore medium duration debt mutual funds.
- Step-Up From Short-Term Debt: Investors who want better return potential than liquid or ultra-short-term funds without taking on long-duration interest-rate risk.
To Wrap It Up…
Medium Duration Funds offer a middle path for investors seeking stability, moderate risk, and a time horizon of four to seven years. While these funds can help diversify a portfolio and support medium-term financial goals, it’s important to understand interest-rate sensitivity, credit quality, exit loads, and taxation before committing money. A careful review of these aspects ensures the fund fits your needs and aligns with your overall investment plan.
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Frequently Asked Questions on Medium Duration Funds
1. What are medium duration funds?
Medium-duration mutual funds invest in debt securities with maturities ranging from three to four years, aiming to balance risk and return.
A medium-term fund typically invests in a blend of government securities and corporate bonds, each with an approximate three to four year maturity.
As of 10th November, 2025 some of the best medium term debt funds based on 5Y CAGR include:
– Aditya Birla SL Medium Term Plan
– Nippon India Medium Duration Fund
– Kotak Medium Term Fund
– Axis Strategic Bond Fund
– ICICI Pru Medium Term Bond Fund
Disclaimer: This list is for informational purposes only and is not investment advice
Short duration funds typically invest in securities with shorter maturities, which can lead to lower sensitivity to interest-rate changes. Medium duration funds invest in bonds with a longer maturity range, so their NAVs may show comparatively more movement when interest rates change.
Long duration funds invest in securities with longer maturities, while medium duration funds hold bonds with comparatively shorter maturities. The primary difference lies in the maturity range each category targets.
Disclaimer: This is only for educational purposes and is not recommendatory.
A medium-term mutual fund may be appealing to investors with a three to four-year investment horizon who want a balance between stability and return potential. It can also fit investors who are comfortable with moderate interest-rate fluctuations and want diversified debt exposure without taking on long-duration volatility.
Medium-term funds offer a middle-ground approach by investing in bonds with medium maturity. They come with reasonable liquidity and help diversify a portfolio with a mix of government and high-quality corporate bonds.
