Short-term debt mutual funds are a type of mutual fund that invest in debt securities with maturities ranging between 1 and 3 years. Such funds are ideal for investors looking for liquidity options while earning income through interest payments on debt security investments. We have curated a list of 10 best short term debt funds in India you could consider investing in. Check them out!
Listed below are the top 10 short duration debt funds in India in 2023:
|Short Duration Debt Funds||Details|
|ICICI Prudential Short Term Fund – Direct Fund – Growth||AUM: ₹15,527.68 crore|
Expense Ratio: 0.39%
|Aditya Birla Sun Life Short Term Fund – Direct Plan – Growth||AUM: ₹5,007.15 crore|
Expense Ratio: 0.38%
|Axis Short Term Fund – Direct Plan – Growth||AUM: ₹6,941.12 crore|
Expense Ratio: 0.31%
|HDFC Short Term Debt Fund – Direct Plan – Growth||AUM: ₹11,258.04 crore|
|Kotak Bond Short Term Plan – Direct Plan – Growth||AUM: ₹13,372.2 crore|
Expense Ratio: 0.35%
|Nippon India Short Term Fund – Direct Plan – Growth||AUM: ₹5,604.0 crore|
|IDFC Bond Fund – Short Term – Direct Plan – Growth||AUM: ₹9,520.3 crore|
Expense Ratio: 0.3%
|IDBI Short Term Bond Fund – Direct Plan – Growth||AUM: ₹30.28 crore|
Expense Ratio: 0.28%
|SBI Short Term Debt Fund – Direct Plan – Growth||AUM: ₹13,339.6 crore|
Expense Ratio: 0.34%
|Invesco India Short Term Fund – Direct Plan – Growth||AUM: ₹400.86 crore|
Expense Ratio: 0.35%
*Returns data valid as of January 31 , 2023. Note that this table shouldn’t be considered as an investment advisory by any means. Consider your risks, investment goals, horizon and other factors before investing in mutual funds.
Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully.
Check out the details of the 10 best short term debt funds below:
ICICI Prudential Short Term Fund is one of the best short term debt funds that was officially launched on January 1, 2013. 95.25% of its investments are in debt securities. As for asset allocation, 61.41% investments are in low-risk securities and 33.8% in government securities. The minimum amount for additional investment and SIP investments are ₹1,000 each.
Aditya Birla Sun Life Short Term Fund is a short duration debt fund that invests 78.09% of its investments in low-risk securities and 16.13% in government securities. It was launched on January 2, 2013, and since then, it has delivered 8.70% average annual returns. While the minimum additional investment is ₹1,000, the minimum amount for SIP investment is ₹500.
The official launch date of Axis Short Term Fund is January 2, 2013, and since then it has delivered annualised returns of 8.18% on average. This short duration debt fund invests 74.48% in low-risk securities and 22.5% in government securities. The minimum additional investment and minimum SIP investment are ₹1,000 each.
Probably one of the best short term debt funds, HDFC Short Term Debt Fund was introduced on January 1, 2013. It invests 65.27% in low-risk securities and 31.95% in government securities. Since its introduction, it has delivered average annual returns of 8.04% per annum. The minimum amount for SIP investment is ₹500.
This short duration debt fund invests 30.01% of its investment portfolio in government securities and 64.24% in low-risk securities. It was launched on January 2, 2013, and since then, it has delivered an average annual return of 8.03% per annum. Its minimum amount for additional investment and SIP investment is ₹1,000 each.
This short duration fund invests 66.72% in low-risk securities and 27.37% in government securities. Since it was launched on January 2, 2013, it has successfully delivered 8.11% average annualised returns. The minimum amount for additional investment is ₹100 and the minimum amount for SIP investment is ₹1,000.
This short duration debt fund was launched on January 3, 2013. It has generated an average annual return of 7.83% since its introduction. The IDFC Bond Fund invests 60.52% in government securities and 38.54% in low-risk securities. The minimum amount required for an additional investment and SIP is ₹1,000. Given below are some of its details:
IDBI Short Term Bond Fund was launched on January 1, 2013, and it invests 47.12% of its total assets in government securities and 34.62% in low-risk securities. Since it was launched, it has delivered 7.76% average annual returns. While the minimum amount required for additional investment is ₹1,000, the minimum amount for SIP investment is ₹500.
SBI Short Term Debt Fund was launched on January 2, 2013, and invests 53.62% in low-risk securities and 29.65% in government securities. Since the scheme’s official launch, it has delivered a 7.80% average annual return. Its minimum SIP investment amount is ₹500 and for additional investments, it is ₹1,000.
Invesco India Short Term Fund invests 92.29% in debt securities with 34.81% in government securities and 57.48% in low-risk securities. Since its introduction on January 2, 2013, it has delivered a 7.55% average annualised return. The minimum amount required for investing via SIP is ₹1,000.
Short-term debt funds invest in debt instruments that have a Macaulay duration of 1-3 years. Macaulay duration refers to the average number of years an investor must wait till the returns from their investment are equal to the amount invested. Such funds invest in debt securities with maturity periods shorter than medium-duration funds but longer than liquid funds.
Due to the relatively short maturity periods of their assets, they are not much vulnerable to interest rate movements. Investing in these funds lends stability to your portfolio in a volatile market. These debt funds aim to deliver higher returns than traditional fixed-income investments while keeping the risks at a moderately low level. Generally, the securities held by these funds carry high credit ratings, which makes their credit risks low.
Listed below are the investors who will want to invest in short term debt funds:
Short term debt funds are ideal for people who do not have a high-risk appetite and wish to invest in schemes aligned with their moderate risk profile.
Ideally, people should not have problems remaining invested for 1 to 3 years as only with a medium investment tenure, can they earn reasonable returns.
Individuals who wish to earn regular returns are ideal investors for these funds as the schemes have government securities and other low-risk investment instruments as their underlying assets.
Investing in short term debt funds online is a convenient process. Given below are the steps you can follow:
Step 1: Analyse your risk profile and have a clear understanding of your investment goals.
Step 2: Shortlist a few short term debt funds and compare the schemes. Check which one is best suited to your investment goals.
Step 3: Visit the official website of the AMC of your chosen short term debt fund. Register and navigate to the mutual fund investment section and click on your chosen scheme.
Step 4: Fill up the required details. Complete your e-KYC using your PAN, Aadhaar and bank account details and click on ‘next’.
Step 5: Confirm your application and transfer the investment amount to initiate the investment.
Here are some of the benefits of short-term debt funds:
Short term debt funds are less risky in comparison to equity funds. They have the potential to offer stable returns, which provides stability to an investment portfolio.
This category of debt mutual funds offers high liquidity. Investors can redeem their units within two working days after placing a redemption request with the asset management company. Such funds do not come with a lock-in period.
More tax-efficient compared to other schemes, if held for 3 or more years. This is because debt mutual funds are taxed based on short-term and long-term Capital Gains. If debt mutual funds are redeemed after holding it for more than 36 months then such long-term capital gain is taxed at 20% with indexation benefit.
Short-term debt funds are considered to be less risky compared to equity funds. This is because debt securities are generally considered to be less risky than stocks.
Short-term debt funds can provide diversification to an investment portfolio, as they invest in a variety of debt securities, reducing the risk of concentration in a single security or sector.
Listed are the factors to consider when choosing a short term debt fund:
Consider your financial goals and then choose a short term debt fund with an appropriate investment tenure. Short term debt funds are suitable for investors with a holding period of 1-3 years.
Expense ratio is the fee charged by AMCs for managing the fund. A higher expense ratio will correspond to lower returns from your mutual fund investments. So, do not forget to check the expense ratio of a short term debt fund before investing in it.
It is essential to check your risk appetite before investing in such funds because these schemes are more suitable for investors with low-risk tolerance.
To evaluate the credit risk of a debt fund, you need to assess the credit rating of securities held by the fund. If you are not comfortable with high credit risk, look for a fund that invests primarily in the highest quality bonds or government securities.
The taxation rules for short term debt mutual funds are the same as that of other debt funds. It depends on the holding period of mutual fund units. The points below will illustrate the taxation rules better:
If you have a low-risk appetite and wish to invest for a short investment duration, you can consider investing in short term debt funds. These schemes provide stable returns that tend to be slightly higher than overnight funds or liquid funds. However, evaluate your investment goals and risk appetite before investing. Choose from the list of best short term debt funds and start investing today!
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Ans: No, short term debt funds do not have a lock-in period.
Ans: It is the estimated total returns from a fixed income security investment when the assets are held till their maturity.
Ans: Generally, a short term debt fund invests in debt instruments such as corporate bonds, commercial papers, non-convertible debentures, government securities, certificates of deposits etc.
Ans: No, there are no tax benefits under this section for investments in short term debt funds.
Ans: Short-duration funds are schemes whose portfolio is designed in such a way so that the average maturity period of the entire investment portfolio is 1 to 3 years in terms of Macaulay Duration. These schemes generate relatively low returns but are less sensitive to market interest rate movements.
Ans: Listed below are the top five short term debt funds:
1. ICICI Prudential Short Term Fund
2. Aditya Birla Sun Life Short Term Fund
3. Axis Short Term Fund
4. HDFC Short Term Debt Fund
5. Kotak Bond Short Term Plan
Ans: Short-term debt funds are associated with low risks which makes them a popular investment option among mutual fund investors. These schemes generate higher returns than other low-risk investments like bank deposits.
Ans: Yes, you can invest in short-term debt funds if you are risk-averse and have an investment horizon of up to 3 years. However, before you invest, it is important to know that these debt funds are not impervious to market interest rate changes. Thus, interest rate changes made by the Reserve Bank of India (RBI) can have positive or negative effects on returns.
Ans: While both have their advantages and disadvantages, there are a few features that make debt funds a better option than FDs. While bank FDs (Fixed Deposits) come in with a lock-in period, you can withdraw your investments from debt funds at any time. Moreover, they can generate returns from both capital gains and interests unlike bank FDs, which only offer interests.
Ans: No, capital gains earned after redeeming debt fund units are taxed depending on the holding period. If it is less than 36 months, then STCGs are added to an individual’s income and taxed accordingly. LTCGs are taxed at 20% with indexation.
Ans: Debt funds generate lower returns compared to equity schemes and are not suitable for long-term wealth creation. So, aggressive investors looking for high returns will not prefer them. Moreover, the presence of credit risk and investment risk are disadvantages for some conservative investors.
Ans: Yes, if you face a financial emergency, you can withdraw the amount required from your debt fund investments. There is no lock-in period, so you can place a redemption request anytime.
Ans: If you wish to earn monthly income from a debt mutual fund, you can set up an SWP (Systematic Withdrawal Plan), a payment option that will enable you to redeem a specified number of units at specific intervals.
Ans: Yes, you can choose to invest via SIP (Systematic Investment Plan) in your preferred debt mutual fund.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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