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Chandigarh: Union Mutual Fund has announced the launch of its latest fixed income offering—Union Low Duration Fund, an open-ended debt scheme tailored to investors seeking short-term capital allocation opportunities. The New Fund Offer (NFO) opens on June 26 and will remain available for subscription until July 10, 2025.
This newly launched scheme aims to provide investors with a low-risk, short-duration debt investment option with a Macaulay duration between 6 to 12 months. In an environment where interest rate movements are increasingly volatile, this fund is positioned as a smart, flexible, and structured solution for those looking to optimize idle funds while preserving liquidity.
What Is a Low Duration Fund and Why Now?
Low duration funds are a category of debt mutual funds that invest primarily in short-term money market instruments and bonds. By keeping their average portfolio maturity under one year, these funds help reduce sensitivity to interest rate fluctuations—offering relatively stable returns and lower volatility than longer-duration fixed income instruments.
Given the current macroeconomic backdrop—marked by evolving monetary policy stances, moderating inflation, and active liquidity management by the Reserve Bank of India (RBI)—short-term funds like this are gaining renewed relevance among both retail and institutional investors.
“This scheme is not about chasing higher yields. It’s about offering structure, flexibility, and better utilization of short-term capital,” said Madhu Nair, CEO of Union Asset Management Company. “We want investors to see this as a reliable parking option for idle funds, without exposing themselves to unnecessary credit or duration risk.”
Investment Objective and Strategy
The Union Low Duration Fund will invest in a diversified portfolio of debt and money market instruments, including treasury bills, commercial papers, certificates of deposit, short-term corporate bonds, and government securities.
The fund’s strategy is to balance capital preservation with efficient yield generation, maintaining liquidity while actively managing risk. The scheme intends to capitalize on favourable spreads, take advantage of monetary transmission trends, and tactically adjust positions based on evolving market signals.
“Our focus will be on liquidity, credit quality, and timely response to rate movements,” said Parijat Agrawal, Head of Fixed Income at Union AMC. “In a market where central banks globally are navigating the fine line between growth and inflation control, staying flexible and short-duration is key.”
Agrawal added that the fund will avoid undue exposure to low-rated instruments and maintain a robust credit profile, aligned with the fund house’s long-standing emphasis on risk-adjusted performance.
Who Should Consider This Fund?
The Union Low Duration Fund is suitable for a wide range of investors, including:
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Retail investors seeking better returns than savings accounts or fixed deposits over a short term of 3 to 12 months.
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Corporate treasuries and institutions looking for efficient short-term capital allocation with high liquidity.
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HNIs and family offices that want to park surplus funds while maintaining low interest rate sensitivity.
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Investors with Systematic Transfer Plans (STPs) to equity schemes over time, using debt as a holding area.
What differentiates the Union Low Duration Fund from ultra-short or overnight funds is its balance of predictability and return potential, while still ensuring daily liquidity and capital safety.
Key Benefits for Investors
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Low interest rate sensitivity due to shorter Macaulay duration
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High liquidity through investment in high-quality money market instruments
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Active duration management to respond quickly to monetary policy shifts
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Suitability for short-term financial goals like contingency planning, parking of proceeds from asset sales, or laddering investments
The Case for Short-Term Debt in 2025
Union AMC’s move comes at a time when the RBI is managing a fine balance between inflation control and liquidity support. With policy rates expected to remain stable in the near term, and a possible downward bias in the medium term, short-term debt instruments offer a sweet spot for investors looking for predictable income with low volatility.
Moreover, with the recent moderation in credit spreads and signs of softening bond yields, low duration funds are emerging as a prudent and timely asset allocation tool—particularly for investors with lower risk appetite and shorter investment horizons.
Important Considerations
While low duration funds are relatively safer compared to long-term debt funds, they are not risk-free. Investors should be aware of:
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Interest rate risk, albeit limited
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Credit risk, depending on the quality of instruments in the portfolio
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Liquidity risk, in case of large-scale redemptions
Investors are advised to read the Scheme Information Document (SID) carefully and consult with SEBI-registered financial advisers before investing, to ensure that the fund aligns with their overall asset allocation and financial goals.
Bottom Line: With the launch of the Union Low Duration Fund, Union Mutual Fund provides a timely solution for investors navigating uncertain interest rate environments. As a structured and conservative offering, the fund aims to deliver optimal short-term returns with minimal volatility—serving as an ideal parking ground for idle capital with a 3- to 12-month horizon.
