Dejargoned: Duration and accrual strategies
Duration debt funds take a call on the interest rate scenario and position their portfolios accordingly. If they forecast interest rates to fall, they buy longer-dated bonds. If their calls go right, they benefit hugely
Debt funds, broadly, follow one of the two strategies. One type of fund aims to make money out of predicting interest rate movements. Accordingly, it will buy and sell securities to have a particular maturity date of the portfolio. This strategy is called duration strategy. The second type of fund aims to invest in companies that have a lower credit rating but are well-managed. The intent here is to buy those companies where the fund manager expects credit ratings to improve, which will hopefully lead its price to go up and benefit the fund. This strategy is called accrual strategy. Many debt funds follow a bit of both strategies, depending on what their market view is. Choosing one over another has a bearing on the returns you could make and risks you take on.