InvestorQ : Why is a low duration MF NAV up and down like an equity fund? Does liquid fund NAV continue to go upside?
seema Upadhyaya made post

Why is a low duration MF NAV up and down like an equity fund? Does liquid fund NAV continue to go upside?

Answer
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Pratik vyas answered.
9 months ago


A low duration mutual funds generally invest a maximum of its capital in debt funds, these are fixed income instruments such as Ultra short-term bond funds, low duration funds, with portfolio maturity of 3 months to 3 years. These funds are highly volatile as they are in pace with the market and are basically dependent upon the market outcomes.

If the interest rates in the market increase, the interest rate on these funds move accordingly. Even though the risk involved in these funds is lower as compared to other funds, the rhythm with the market cannot be denied.

It is not necessary that the NAV of liquid funds always go upside, but it is less volatile and responding to market changes. It can be a good alternative for your savings bank account and have the potential to offer higher post-tax returns.

However, you might have heard the common phrase in finance “lower the risk, lower the yield”. Well, this holds true as in liquid funds the risk involved is very low, so is the return. On the other hand, the return on short-duration bonds is comparatively higher and so is the risk.