Short vs long duration debt funds: HSBC MF CEO explains where to invest now
Short-duration funds generally invest in debt instruments with maturities of up to three years. In contrast, long-duration funds hold securities that can stretch out to 7–10 years.
The core difference lies in interest rate sensitivity — longer-duration funds are more volatile and can gain significantly when interest rates fall, while short-duration funds offer relatively more stability.
Given the recent surprise 50-basis-point rate cut and surplus liquidity in the market, many fund managers expect the environment to remain stable in the near term.
In such conditions, financial experts suggest that investors may benefit from staying within the two-to-three-year maturity bracket, rather than stretching to the long end of the curve.
As Kailash Kulkarni, CEO of HSBC Mutual Fund, notes, “Short-duration funds tend to be more stable, making them more suitable in a scenario where rates may not move significantly.”
However, if signals in the coming quarters point to further rate cuts, long-duration funds could once again come into favour, given their potential for higher capital gains.
For first-time debt fund investors, especially those accustomed to the safety of fixed deposits, it’s crucial to choose funds with high credit quality, such as those investing in sovereign or AAA-rated bonds.
Kulkarni advises matching the fund’s maturity profile with the investor’s time horizon to manage risk more effectively.
Choosing between short and long-duration debt funds isn’t about chasing returns, but aligning with market conditions and your personal financial goals.
Investors should regularly review rate outlooks, liquidity trends, and fund volatility before making decisions.
(Edited by : Anshul)