Medium to long duration funds are debt mutual funds that invest in debt and money market instruments. These include government securities, corporate bonds and other fixed-income securities.

These schemes must maintain a portfolio Macaulay duration of 4 to 7 years. This puts them between medium duration funds, which have a 3-4 year duration, and long duration funds, which have a duration of more than 7 years.

Medium to long duration funds have the potential to earn returns from both interest income and changes in bond prices. But these returns are not fixed. However, the interest rate risk is also higher, as bond prices can be volatile when market rates change.

These mutual fund schemes may fit your portfolio if:

• You have a medium to long investment horizon: These funds can make sense when you don't need your money immediately. A longer holding period gives you more time to ride out interest-rate-related NAV fluctuations.
• You want debt exposure without going all the way to long duration: Medium to long duration schemes sit in the middle of the longer-duration funds range. They can be considered if medium duration funds feel too short-term for your needs, while long duration funds feel too sensitive to rate movements.
• You want to diversify your portfolio: If you are already investing in a large cap fund, flexi cap fund, or other equity fund through SIP, a debt fund can add another asset class to the mix.
• You are comfortable with moderate to high interest-rate risk: These funds can see meaningful NAV movements when interest rates change. You should be comfortable with that before putting your money in them.

The fund manager of a medium to long duration fund invests in a portfolio of debt and money market instruments. They manage the portfolio so that its Macaulay duration stays within the category's 4-7 year range under normal circumstances.

Now, as an investor, imagine you invest ₹10,000 in a fund when its NAV is ₹25. You receive 400 units. Now suppose interest rates fall and the bonds held by the fund gain value. The NAV may rise to ₹25.75. Your 400 units would then be worth ₹10,300 (400 units x ₹25.75).

But the reverse can happen too. If rising interest rates cause the NAV to fall to ₹24.25, your investment would be worth ₹9,700.

The fund also earns interest from securities it holds. Your final return depends on the combined effect of this income, changes in bond prices, and the expenses involved.

• You get exposure to the middle of the duration curve: This category gives you more duration exposure than shorter-duration funds, without moving into the more rate-sensitive territory of long duration funds.
• Falling interest rates can create an opportunity: When market interest rates decline, prices of existing bonds generally rise. A fund with 4-7 years of duration can benefit from this price movement.
• The portfolio can earn regular interest income: Debt securities held by the fund can generate interest income. This forms one part of the fund's overall return.
• One fund can hold several debt instruments: Instead of buying individual bonds yourself, you get exposure to a professionally managed portfolio. This exact mix depends on the scheme.
• It can complement equity investments: Debt and equity respond differently to market conditions. Adding debt through medium to long duration mutual funds can help create a more diversified portfolio.

If you are looking for different debt exposure, corporate bond funds, gilt funds and floater funds are other schemes you can consider.

• Interest rate risk is significant: A 4-7 year duration makes these schemes sensitive to interest rate movements. Rising rates can cause bond prices and the fund's NAV to fall.
• Your investment value can fall temporarily: Debt funds do not guarantee that your investment will increase every month or every year. NAV fluctuations are normal.
• Credit risk can affect returns: If a bond issuer faces financial trouble or defaults, the fund can suffer a loss. The level of credit risk depends on the securities held by the individual scheme.
• Liquidity can become an issue: Some debt securities may be harder to sell during stressed market conditions. This can affect the price at which the fund is able to sell them.
• Inflation can reduce your real return: Even if your investment earns a positive return, high inflation can reduce what that money can buy in the future.

These three schemes are close to each other, but their duration ranges are different. That changes how much their NAV reacts when interest rates move. Let's compare them:

However, if your needs are different, you can also explore liquid funds, money market funds, dynamic bond funds, or credit risk funds.

Don't choose a fund simply because it appears on a list of the best medium to long duration mutual funds. Instead, look at factors such as:

• Check the holdings: Look at the types of bonds held and their credit ratings. A fund holding mostly high-quality securities can have a different risk profile from one taking more credit risk.
• Study performance across different periods: Don't rely on the latest one-year return. Check longer periods and the rolling returns. This gives you a broader view of how the fund handles different market conditions.
• Compare similar schemes: Look at returns, portfolio quality, duration and expense ratios across funds in the same category. This gives you a more useful comparison than looking at returns alone.
• Read the riskometer: Mutual funds display a riskometer to indicate the scheme's risk level. Use it along with the portfolio details instead of treating the rating as the only thing that matters.
• Check the exit load: Some schemes charge an exit load when you redeem within a specified period. Know this before investing, especially if you may need the money early.

The best medium to long duration funds for someone may not suit your timeline or risk tolerance. Your investment goal should come first when choosing the fund to invest in.

Once you're ready, you can set up an SIP on Millions in a few simple steps:

• Get the Millions app on your iOS or Android smartphone.
• Finish the KYC process and create your free account.
• Once you're inside the app, search the available mutual funds and find a medium to long duration fund that suits your requirements.
• Select SIP and choose whether you want to invest monthly, weekly or daily.
• Enter the amount and select the investment debit date.
• Review the details and complete the first payment.

You're all set! A SIP helps you convert your savings into your investments at regular intervals instead of waiting for the ‘perfect’ time to invest. With medium to long duration funds, the bigger question is whether its 4 to 7 year duration fits your financial goal. If you want a shorter duration, you can consider short duration or medium duration funds.