Synopsis: A lower expense ratio can improve your mutual fund returns, but it doesn’t always guarantee the best performance. This article lists the top five low-cost medium to long duration debt mutual funds that outperformed their category average over the past three years.
Debt mutual funds are often chosen for relatively stable returns, but the cost of investing matters too. One of the most important costs is the expense ratio, which can directly impact an investor’s net returns over time. Medium to long duration mutual funds invest primarily in bonds with Macaulay duration in between the range of 4 to 7 years. The ideal investor for these funds is one who has a medium to long-term investment target and desires to take advantage of any drop in interest rates while maintaining a relatively stable return.
Top 5 Low-Cost Medium to Long Duration Mutual Funds
1. ICICI Prudential Diversified Debt Strategy Active FoF
- NAV: ₹49.68
- AUM: ₹105.17 Cr
- Expense Ratio: 0.42%
- Exit Load: 0.25% (within 15 days)
- Performance Snapshot
- 3-Year CAGR: 7.44%
- 3-Year Absolute Return: 24.0%
- Category Comparison (3-Year)
- Fund 3-Year CAGR: 7.44%
- Debt medium to long duration Category Average: 6.8%
- Outperformance: +0.64 percentage points
2. LIC MF Medium to Long Duration Fund
- NAV: ₹81.95
- AUM: ₹176.67 Cr
- Expense Ratio: 0.21%
- Exit Load: 0.25% (within 15 days)
- Performance Snapshot
- 3-Year CAGR: 7.41%
- 3-Year Absolute Return: 24.0%
- Category Comparison (3-Year)
- Fund 3-Year CAGR: 7.41%
- Debt medium to long duration Category Average: 6.8%
- Outperformance: +0.61 percentage points
3. ICICI Prudential Bond Fund
- NAV: ₹44.87
- AUM: ₹2,002.23 Cr
- Expense Ratio: 0.54%
- Exit Load: Nil
- Performance Snapshot
- 3-Year CAGR: 7.40%
- 3-Year Absolute Return: 23.9%
- Category Comparison (3-Year)
- Fund 3-Year CAGR: 7.40%
- Debt medium to long duration Category Average: 6.8%
- Outperformance: +0.60 percentage points
4. Kotak Bond Fund
- NAV: ₹90.54
- AUM: ₹1,806.60 Cr
- Expense Ratio: 0.74%
- Exit Load: Nil
- Performance Snapshot
- 3-Year CAGR: 7.26%
- 3-Year Absolute Return: 23.4%
- Category Comparison (3-Year)
- Fund 3-Year CAGR: 7.26%
- Debt medium to long duration Category Average: 6.8%
- Outperformance: +0.46 percentage points
5. SBI Medium to Long Duration Fund
- NAV: ₹80.07
- AUM: ₹2,054.73 Cr
- Expense Ratio: 0.78%
- Exit Load: 1% (within 1 year)
- Performance Snapshot
- 3-Year CAGR: 7.05%
- 3-Year Absolute Return: 22.7%
- Category Comparison (3-Year)
- Fund 3-Year CAGR: 7.05%
- Debt medium to long duration Category Average: 6.8%
- Outperformance: +0.25 percentage points
Note: NAV, AUM, expense ratio and exit load data are sourced from Groww. Data is as of 24th July 2026.
Also read: ITR Filing 2026: Fixed Deposit Interest Is Fully Taxable – Here’s How to Report It Without Mistakes
How Much Does an Expense Ratio Matter?
Even a small difference in the expense ratio can affect long-term returns. Lower annual costs help more of your investment stay invested and compound over time.
Illustrative Example: How Expense Ratio Impacts Returns
Note: This is a simplified example to show how expense ratios can affect long-term returns. Actual mutual fund returns already account for expenses and may differ based on market performance and the fund’s investment strategy.
Key takeaways
- All five funds outperformed the medium to long duration debt fund category average over the last three years.
- ICICI Prudential Diversified Debt Strategy Active FoF delivered the highest 3-year CAGR of 7.44%, while LIC MF Medium to Long Duration Fund had the lowest expense ratio at 0.21%.
- Although low expenses can improve long-term performance, but it doesn’t necessarily mean a high performing fund.
- Apart from expense ratio, other aspects like quality of the portfolio, interest rate strategy, and fund management also influence returns.
- While selecting debt mutual funds, consider their performance, risk, and expense ratio.
Disclaimer: The information provided in this article is for educational purposes only and should not be construed as financial advice or investment recommendation. Returns mentioned are based on historical performance and may not be sustained in the future. Mutual fund investments are subject to market risks, including potential loss of capital. Investors are advised to assess their risk appetite and financial goals and to consult a certified financial advisor before investing.
