LIC MF Short Duration Fund – LIC Mutual Fund
LIC MF Short Duration Fund
Problem
- Addressed investor need for low-volatility debt solutions amid fluctuating interest rate cycles .
- Aimed to optimize returns while maintaining short duration to reduce interest rate risk.
- Required creation of stable income opportunities in a volatile macroeconomic environment.
- Need for better alternatives to inflexible traditional fixed-income instruments.
- Need to support short-term financial planning with moderate-risk instruments.
Solution
- Actively managed duration within the SEBI-defined 1–3 year range to reduce rate sensitivity.
- Constructed a high-quality portfolio using strong credit-rated debt instruments.
- Executed tactical allocation shifts based on macroeconomic indicators and rate outlook.
- Strengthened liquidity management without compromising credit quality.
- Designed the solution to ensure capital preservation alongside consistent income.
Outcomes
- Achieved consistent risk-adjusted returns despite volatile interest rate cycles.
- Enhanced investor confidence in short-term debt solutions.
- Maintained liquidity and capital preservation across market phases.
- Strengthened the fund’s competitive positioning in the short duration category.
- Expanded investor participation due to disciplined risk management.
SKOCH Award Nominee
Category: Financial Services
Sub-Category: Mutual Fund – Short Duration Mutual Fund
Project: LIC MF Short Duration Fund
Start Date: 2-01-2019
Organisation: LIC Mutual Fund
Respondent: Saurabh Vashistha
https://www.licmf.com/snapshot/lic-mf-short-duration-fund/LIC179
Level: BFSI – 1
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Case Study
LIC MF Short Duration Fund – LIC Mutual Fund
LIC MF Short Duration Fund began with the objective of creating a stable, moderate-risk debt solution tailored for investors seeking predictable returns without exposure to high volatility. The project originated in an environment marked by frequent interest rate fluctuations and heightened uncertainty in debt markets, making short-term financial planning difficult for both retail and institutional investors. The fund was designed around a disciplined duration strategy, maintaining its Macaulay duration within the SEBI-mandated band of 1–3 years to provide an optimal balance between yield and risk. By using this structured investment horizon, the fund sought to reduce interest rate sensitivity while retaining the ability to respond tactically to macroeconomic developments .
From the beginning, the strategy focused on portfolio stability. Fund managers increased allocation to high-quality corporate bonds and reduced exposure to instruments with elevated credit or duration risk. This required continuous evaluation of creditworthiness, issuer fundamentals, and liquidity conditions. Tactical shifts were executed based on the prevailing interest rate outlook, allowing the fund to capture opportunities in the short end of the yield curve while avoiding excessive duration exposure. This prudent approach ensured that the fund remained robust even as the external environment shifted due to regulatory updates, inflation cycles, and monetary policy adjustments.
Implementation of the project required coordinated decisions by experienced leadership, including the Head of Fixed Income and the Fund Manager, both of whom brought extensive expertise to the process. Their combined understanding of fixed-income markets and rate behaviour enabled timely adjustments to preserve capital and maintain yield consistency. The fund’s deployment approach also benefited from seamless operational support, ensuring accuracy in portfolio rebalancing, documentation, compliance, and reporting. This alignment across teams contributed to the smooth and efficient functioning of the product throughout the evaluation period.
The fund faced several challenges during execution, particularly in navigating volatile rate environments where market expectations changed frequently. Maintaining liquidity while upholding strict credit standards required careful issuer selection. Another challenge stemmed from managing investor expectations during periods when short-term yields compressed, reducing visible returns. However, the fund’s philosophy of disciplined credit selection and controlled duration management allowed it to stabilise performance across different phases, reinforcing investor trust.
For more information, please contact:
Saurabh Vashistha at s.vashistha@licmf.com
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