Best Low Duration Mutual Funds in India 2026: Top 10 & Guide
What Low Duration mutual funds are, who should invest, key risks, and the top 10 funds with returns and risk data.
Low duration funds are debt funds whose portfolio duration is between 6 and 12 months. They hold assets for longer than liquid or overnight funds and can carry lower credit quality, so they have higher interest rate and credit risk. This guide covers who should invest, benefits, risks, and the top 10 low duration funds from our data.
Key takeaways
- Low duration funds invest in short-term debt securities with a portfolio duration of 6 to 12 months.
- Compared with overnight and liquid funds, they carry more interest rate and credit risk.
- They suit investors with a horizon of over three months and moderate risk tolerance.
- Some funds may hold lower-quality debt to improve returns, which adds risk.
- The top 10 funds below are ranked by an internal score, with return and risk numbers shown.
What are low duration mutual funds?
Low duration funds are debt funds that invest in short-term debt securities, with a portfolio duration of 6 to 12 months. Compared with overnight or liquid funds they hold assets for longer and may hold lower credit quality, which means higher interest rate risk and credit risk.
Who should invest in low duration mutual funds?
- Investors with a horizon of three months or more. Very short horizons are better served by overnight or liquid funds. They can temporarily park surplus from a property sale or an annual bonus.
- Investors seeking regular income: returns come from interest and capital gains, and a systematic withdrawal plan can create an income stream.
- Investors seeking alternatives to bank deposits who accept modest risk in exchange for better liquidity and market-linked return potential.
What should you consider before investing?
- Taxation: capital gains are taxed according to the holding period.
- Historic returns: look at several years of returns rather than the latest number.
- Expense ratio: it is usually low but still affects the final return.
Advantages of low duration funds
- Active risk management by fund managers.
- Higher returns than some other debt funds, as they take more credit risk and hold shorter-maturity bonds.
- Moderate risk: securities are not held beyond 6 to 12 months, so they are less exposed to inflation and interest rate swings.
- Two ways to invest: lump sum or SIP.
Risks of low duration funds
- Low-quality debt exposure can cut the fund's value, leaving you to sell at a loss or hold at a lower value.
- Volatility, because the funds are actively managed.
- Interest rate risk, which should match your risk tolerance.
How are Low Duration mutual funds taxed?
Gains from Low Duration funds are subject to tax on gains, with the rules depending on the type of debt fund and the date of purchase. The rates and holding-period rules depend on the fund type and can change, so check the current rules or speak to a tax advisor before you invest.
Top 10 Low Duration mutual funds ranked by an internal score
These are the top 10 Low Duration funds from our data, ranked by Invo Wealth's internal fund-quality score. The score itself is not shown, only the return and risk numbers behind it. A "--" means the fund has not completed that period or the data is unavailable. Some entries are different plan or option variants of the same scheme (for example Direct vs Regular, or Growth vs Bonus), so their figures can look similar.
Returns across 6 months to 5 years
Performance data as of 5 September 2026.
| Fund | 6M CAGR | 1Y CAGR | 3Y CAGR | 5Y CAGR |
|---|---|---|---|---|
| UTI Ultra Short to Short Term Fund - Regular Plan - Growth | 6.63% | 6.31% | 7.21% | 7.41% |
| UTI Ultra Short to Short Term Fund - Regular Plan - Discontinued Growth | 6.63% | 6.31% | 7.02% | 7.10% |
| HSBC Ultra Short to Short Term Fund | 6.68% | 6.10% | 7.44% | -- |
| ICICI Prudential Ultra Short to Short Term Fund | 6.81% | 6.48% | 7.39% | 6.57% |
| Axis Ultra Short to Short Term Fund - Regular Plan - Growth Option | 6.51% | 6.18% | 7.13% | 6.33% |
| Axis Ultra Short to Short Term Fund - Regular Plan - Growth Option | 6.51% | 6.18% | 7.13% | 6.33% |
| Tata Ultra Short to Short Term Fund | 6.73% | 6.22% | 6.98% | 6.15% |
| Nippon India Ultra Short to Short Term Fund - Regular Plan - Bonus Option | 6.37% | 6.00% | 6.90% | 6.11% |
| Franklin India Low Duration Fund - Growth Plan | 0.00% | 0.00% | 0.00% | 6.30% |
| Nippon India Ultra Short to Short Term Fund - Regular Plan - Growth Option | 6.37% | 6.00% | 6.90% | 6.11% |
Risk and consistency metrics
| Fund | ISIN | Volatility | Max drawdown (3Y) | Sortino ratio |
|---|---|---|---|---|
| UTI Ultra Short to Short Term Fund - Regular Plan - Growth | INF789F01OT9 | 0.58% | -0.20% | 0.73 |
| UTI Ultra Short to Short Term Fund - Regular Plan - Discontinued Growth | INF789F01331 | 0.57% | -0.20% | 0.08 |
| HSBC Ultra Short to Short Term Fund | INF677K01452 | 1.07% | -0.24% | 1.44 |
| ICICI Prudential Ultra Short to Short Term Fund | INF109K01746 | 0.60% | -0.22% | 1.35 |
| Axis Ultra Short to Short Term Fund - Regular Plan - Growth Option | INF846K01479 | 0.58% | -0.23% | 0.45 |
| Axis Ultra Short to Short Term Fund - Regular Plan - Growth Option | INF846K01537 | 0.58% | -0.23% | 0.45 |
| Tata Ultra Short to Short Term Fund | INF277K01MA9 | 0.55% | -0.20% | -0.08 |
| Nippon India Ultra Short to Short Term Fund - Regular Plan - Bonus Option | INF204K01EW4 | 0.58% | -0.23% | -0.32 |
| Franklin India Low Duration Fund - Growth Plan | INF090I01BU1 | -- | -- | -- |
| Nippon India Ultra Short to Short Term Fund - Regular Plan - Growth Option | INF204K01EV6 | 0.58% | -0.23% | -0.32 |
Check volatility and drawdown for hints of credit stress, and compare each fund only with others of similar duration.
How to invest in Low Duration mutual funds
You can invest in these funds using the Invo Wealth app. Sign up, get complete portfolio insights and start investing in mutual funds that actually suit you.
Conclusion
Low duration funds offer a step up from liquid funds for money you will not need for a few months. They carry more credit and interest rate risk, so check quality and costs.
Frequently asked questions
What is a low duration fund?
Low duration funds are debt funds that invest in short-term debt securities with a portfolio duration of 6 to 12 months. They are a little more volatile than ultra-short funds and relatively less risky than equity funds.
What are the advantages of low duration funds?
They benefit when interest rates fall. When rates rise, managers can cut the duration to reduce capital losses and earn more on new purchases. They suit a medium risk appetite.
When should I invest in a low duration fund?
When you can stay invested for around 6 to 12 months, or more than three months, and want an alternative to bank accounts.
What do low duration funds invest in?
A broad variety of assets such as money market securities, government securities, hybrid instruments and corporate bonds.
How can I invest in low duration mutual funds?
You can invest through a SIP or a lump sum. To invest in these funds, you can use the Invo Wealth app: sign up, get portfolio insights and start investing.
Mutual fund investments are subject to market risks; read all scheme-related documents carefully. This article is for education only and is not investment advice. Past performance does not guarantee future returns. Invo Wealth is an AMFI-registered mutual fund distributor (ARN-368528).