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Accrual Funds Vs Duration Funds

Updated on August 27, 2025 , 7296 views

Accrual Funds and Duration Funds fall under the debt category. These are basically one of the two strategies that Debt fund follow. Let's learn about these strategies, how they differ from each other and the Best Accrual Funds and Duration Funds to invest in 2025.

Accrual Based Strategy

Accrual Funds ideally focus to earn interest Income in terms of coupon offered by Bonds. These are a type of debt funds which typically invest in short to medium maturity papers. These papers are of mid-to-high quality while focusing on holding securities until the maturity. Accrual Funds adopt buy & hold strategies and focus on delivering better returns compared to Bank fixed deposits.

These funds take a credit-risk and invest in slightly lower-rated securities, in order to generate higher yields. Accrual Funds can also make returns from the Capital gains, but this tends to be a small portion of their total returns. Usually, the funds which follow accrual strategy generally buy short-term instruments and prefer to hold till maturity. This is because it tends to reduce the interest rate risk. Corporate bond funds invest in high yielding corporate bonds which have a shorter maturity period.

Accrual Funds are an ideal investment option for investors who have a viewpoint about the interest rate movements.

Ultra short term bond Funds, FMPs, and Short Term Bond Funds follow this strategy. If an investor needs a steady return from his debt Portfolio and is not ready to take higher risks, should ideally invest in Accrual based funds.

These funds are suitable for investors who want to earn desire stable returns. But, an investor should have a view on interest rate movements.

It is advised to invest in Accrual Funds for least a 1-3-year horizon.

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Duration Based Strategy

Ideally, the funds which follow the Duration based strategy invest in long-term bonds and benefit from the interest rates fall. They earn from capital appreciation along with the coupon of the bond. But, these funds are exposed to interest rate risk and these funds can bear capital losses, if the interest rates move up.

In this strategy, the fund manager predicts the interest rate movements. The duration fund manager increases or decreases the duration and average maturity frequently of the fund as per his viewpoint. The wrong predictions of the fund manager can make the duration based debt funds suffer a loss.

A fund managers focus is highly on managing the duration so as to maximize returns. Generally, when the interest rates are going down, the duration fund manager chooses a relatively high duration, so as to, maximize Capital Gains from the rising bond prices. And on a vice-versa situation, i.e., when the interest rates are rising, the duration of the fund would be minimized, so as to protect against capital losses on the portfolio.

Long-Term Income Funds and Gilt Funds follow the duration based strategy. Therefore, these funds are advisable for investors who can ride with the Volatility associated with the fund.

These funds can generate a better return in a time when the interest rates are set to move downwards.

How to Decide?

Since each of them carries its own risk, an investor can also adopt a combination of both the type of funds in his debt portfolio as per his risk profile.

An accrual strategy fund, if pursued too aggressively, may lead to an increase in credit-risk in the portfolio. On the other hand, a duration strategy can face an interest rate risk or a risk of volatility if the Call of interest rate movements of the fund manager goes wrong, etc.

Therefore, both the strategies have their own merits and have a different risk-reward proposition for the investor.

Top 5 Accrual Mutual Funds

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)2024 (%)Debt Yield (YTM)Mod. DurationEff. Maturity
ICICI Prudential Corporate Bond Fund Growth ₹30.1121
↓ -0.03
₹33,5740.94.48.27.886.78%2Y 5M 26D4Y 6M 29D
BNP Paribas Corporate Bond Fund Growth ₹27.7456
↓ -0.01
₹4220.54.98.77.78.36.73%3Y 6M 22D4Y 10M 20D
Franklin India Corporate Debt Fund Growth ₹100.588
↓ -0.01
₹1,1090.95.79.47.57.66.85%2Y 5M 19D5Y 1M 2D
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 29 Aug 25

Research Highlights & Commentary of 3 Funds showcased

CommentaryICICI Prudential Corporate Bond FundBNP Paribas Corporate Bond FundFranklin India Corporate Debt Fund
Point 1Highest AUM (₹33,574 Cr).Bottom quartile AUM (₹422 Cr).Lower mid AUM (₹1,109 Cr).
Point 2Established history (16+ yrs).Established history (16+ yrs).Oldest track record among peers (28 yrs).
Point 3Top rated.Rating: 3★ (lower mid).Rating: 2★ (bottom quartile).
Point 4Risk profile: Moderately Low.Risk profile: Moderate.Risk profile: Moderate.
Point 51Y return: 8.16% (bottom quartile).1Y return: 8.73% (lower mid).1Y return: 9.39% (upper mid).
Point 61M return: 0.02% (lower mid).1M return: -0.13% (bottom quartile).1M return: 0.03% (upper mid).
Point 7Sharpe: 2.12 (upper mid).Sharpe: 1.78 (lower mid).Sharpe: 1.59 (bottom quartile).
Point 8Information ratio: 0.00 (upper mid).Information ratio: 0.00 (lower mid).Information ratio: 0.00 (bottom quartile).
Point 9Yield to maturity (debt): 6.78% (lower mid).Yield to maturity (debt): 6.73% (bottom quartile).Yield to maturity (debt): 6.85% (upper mid).
Point 10Modified duration: 2.49 yrs (lower mid).Modified duration: 3.56 yrs (bottom quartile).Modified duration: 2.47 yrs (upper mid).

ICICI Prudential Corporate Bond Fund

  • Highest AUM (₹33,574 Cr).
  • Established history (16+ yrs).
  • Top rated.
  • Risk profile: Moderately Low.
  • 1Y return: 8.16% (bottom quartile).
  • 1M return: 0.02% (lower mid).
  • Sharpe: 2.12 (upper mid).
  • Information ratio: 0.00 (upper mid).
  • Yield to maturity (debt): 6.78% (lower mid).
  • Modified duration: 2.49 yrs (lower mid).

BNP Paribas Corporate Bond Fund

  • Bottom quartile AUM (₹422 Cr).
  • Established history (16+ yrs).
  • Rating: 3★ (lower mid).
  • Risk profile: Moderate.
  • 1Y return: 8.73% (lower mid).
  • 1M return: -0.13% (bottom quartile).
  • Sharpe: 1.78 (lower mid).
  • Information ratio: 0.00 (lower mid).
  • Yield to maturity (debt): 6.73% (bottom quartile).
  • Modified duration: 3.56 yrs (bottom quartile).

Franklin India Corporate Debt Fund

  • Lower mid AUM (₹1,109 Cr).
  • Oldest track record among peers (28 yrs).
  • Rating: 2★ (bottom quartile).
  • Risk profile: Moderate.
  • 1Y return: 9.39% (upper mid).
  • 1M return: 0.03% (upper mid).
  • Sharpe: 1.59 (bottom quartile).
  • Information ratio: 0.00 (bottom quartile).
  • Yield to maturity (debt): 6.85% (upper mid).
  • Modified duration: 2.47 yrs (upper mid).

Top 5 Duration Mutual Funds

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)2024 (%)Debt Yield (YTM)Mod. DurationEff. Maturity
Franklin India Corporate Debt Fund Growth ₹100.588
↓ -0.01
₹1,1090.95.79.47.57.66.85%2Y 5M 19D5Y 1M 2D
Aditya Birla Sun Life Corporate Bond Fund Growth ₹113.433
↓ -0.16
₹28,59803.97.77.68.56.9%4Y 6M 11D6Y 10M 17D
ICICI Prudential Corporate Bond Fund Growth ₹30.1121
↓ -0.03
₹33,5740.94.48.27.886.78%2Y 5M 26D4Y 6M 29D
Aditya Birla Sun Life Short Term Opportunities Fund Growth ₹47.9999
↓ -0.03
₹10,5240.84.38.17.37.96.93%2Y 8M 26D3Y 7M 6D
ICICI Prudential Short Term Fund Growth ₹60.7715
↓ -0.05
₹22,0701.14.58.27.77.87.11%2Y 2M 5D4Y 25D
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 29 Aug 25

Research Highlights & Commentary of 5 Funds showcased

CommentaryFranklin India Corporate Debt FundAditya Birla Sun Life Corporate Bond FundICICI Prudential Corporate Bond FundAditya Birla Sun Life Short Term Opportunities FundICICI Prudential Short Term Fund
Point 1Bottom quartile AUM (₹1,109 Cr).Upper mid AUM (₹28,598 Cr).Highest AUM (₹33,574 Cr).Bottom quartile AUM (₹10,524 Cr).Lower mid AUM (₹22,070 Cr).
Point 2Oldest track record among peers (28 yrs).Established history (28+ yrs).Established history (16+ yrs).Established history (22+ yrs).Established history (23+ yrs).
Point 3Rating: 2★ (bottom quartile).Top rated.Rating: 4★ (upper mid).Rating: 4★ (lower mid).Rating: 4★ (bottom quartile).
Point 4Risk profile: Moderate.Risk profile: Moderately Low.Risk profile: Moderately Low.Risk profile: Moderate.Risk profile: Moderate.
Point 51Y return: 9.39% (top quartile).1Y return: 7.73% (bottom quartile).1Y return: 8.16% (upper mid).1Y return: 8.11% (bottom quartile).1Y return: 8.16% (lower mid).
Point 61M return: 0.03% (upper mid).1M return: -0.39% (bottom quartile).1M return: 0.02% (lower mid).1M return: 0.00% (bottom quartile).1M return: 0.09% (top quartile).
Point 7Sharpe: 1.59 (bottom quartile).Sharpe: 1.54 (bottom quartile).Sharpe: 2.12 (upper mid).Sharpe: 1.86 (lower mid).Sharpe: 2.15 (top quartile).
Point 8Information ratio: 0.00 (top quartile).Information ratio: 0.00 (upper mid).Information ratio: 0.00 (lower mid).Information ratio: 0.00 (bottom quartile).Information ratio: 0.00 (bottom quartile).
Point 9Yield to maturity (debt): 6.85% (bottom quartile).Yield to maturity (debt): 6.90% (lower mid).Yield to maturity (debt): 6.78% (bottom quartile).Yield to maturity (debt): 6.93% (upper mid).Yield to maturity (debt): 7.11% (top quartile).
Point 10Modified duration: 2.47 yrs (upper mid).Modified duration: 4.53 yrs (bottom quartile).Modified duration: 2.49 yrs (lower mid).Modified duration: 2.74 yrs (bottom quartile).Modified duration: 2.18 yrs (top quartile).

Franklin India Corporate Debt Fund

  • Bottom quartile AUM (₹1,109 Cr).
  • Oldest track record among peers (28 yrs).
  • Rating: 2★ (bottom quartile).
  • Risk profile: Moderate.
  • 1Y return: 9.39% (top quartile).
  • 1M return: 0.03% (upper mid).
  • Sharpe: 1.59 (bottom quartile).
  • Information ratio: 0.00 (top quartile).
  • Yield to maturity (debt): 6.85% (bottom quartile).
  • Modified duration: 2.47 yrs (upper mid).

Aditya Birla Sun Life Corporate Bond Fund

  • Upper mid AUM (₹28,598 Cr).
  • Established history (28+ yrs).
  • Top rated.
  • Risk profile: Moderately Low.
  • 1Y return: 7.73% (bottom quartile).
  • 1M return: -0.39% (bottom quartile).
  • Sharpe: 1.54 (bottom quartile).
  • Information ratio: 0.00 (upper mid).
  • Yield to maturity (debt): 6.90% (lower mid).
  • Modified duration: 4.53 yrs (bottom quartile).

ICICI Prudential Corporate Bond Fund

  • Highest AUM (₹33,574 Cr).
  • Established history (16+ yrs).
  • Rating: 4★ (upper mid).
  • Risk profile: Moderately Low.
  • 1Y return: 8.16% (upper mid).
  • 1M return: 0.02% (lower mid).
  • Sharpe: 2.12 (upper mid).
  • Information ratio: 0.00 (lower mid).
  • Yield to maturity (debt): 6.78% (bottom quartile).
  • Modified duration: 2.49 yrs (lower mid).

Aditya Birla Sun Life Short Term Opportunities Fund

  • Bottom quartile AUM (₹10,524 Cr).
  • Established history (22+ yrs).
  • Rating: 4★ (lower mid).
  • Risk profile: Moderate.
  • 1Y return: 8.11% (bottom quartile).
  • 1M return: 0.00% (bottom quartile).
  • Sharpe: 1.86 (lower mid).
  • Information ratio: 0.00 (bottom quartile).
  • Yield to maturity (debt): 6.93% (upper mid).
  • Modified duration: 2.74 yrs (bottom quartile).

ICICI Prudential Short Term Fund

  • Lower mid AUM (₹22,070 Cr).
  • Established history (23+ yrs).
  • Rating: 4★ (bottom quartile).
  • Risk profile: Moderate.
  • 1Y return: 8.16% (lower mid).
  • 1M return: 0.09% (top quartile).
  • Sharpe: 2.15 (top quartile).
  • Information ratio: 0.00 (bottom quartile).
  • Yield to maturity (debt): 7.11% (top quartile).
  • Modified duration: 2.18 yrs (top quartile).

Conclusion

Both, accrual and duration strategies serve their purpose for different goals and strategies. If we look at the returns of last one year, we find that both the categories have earned similar returns. But as we move to the most volatile period, it is noticed that the Accrual Funds have flared well compared to the duration ones.

Disclaimer:
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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