Mr Mehta wants to invest in mutual funds to cover his child’s education. Being a risk-averse individual, he is looking for options that will provide him appreciable returns over a short period without incurring substantial financial losses.
In such a scenario, Mr Mehta can choose from the best short term debt funds available in India. These funds invest in debt securities and money market instruments such that the portfolio’s Macaulay duration is anywhere between 1 and 3 years. Such mutual fund schemes involve low financial risk and can generate stable returns.
If your investment objective is similar to that of Mr Mehta, you might want to go through the following segment and streamline your options.
|Best Short Term Debt Funds||Features|
|IDFC Bond Fund Short Term Plan||Assets Under Management (AUM): Rs.12,708.19 Crore as of 30 September 2021|
5-year returns: 7.78% as of 31 October 2021
Net Asset Value (NAV): Rs. 48.2349 as of 3 November 2021
Expense ratio: 0.29%
|Nippon India Short Term Fund||Assets Under Management (AUM): Rs. 10,552.76 Crore as of 30 September 2021|
5-year returns: 7.13% as of 30 September 2021
NAV: Rs. 44.5865 as of 30 September 2021
Expense ratio: 0.33%
|ICICI Prudential Short Term Fund||Assets Under Management (AUM): Rs. 21344.92 Crore as of 30 September 2021|
5-year returns: 8.28% as of 29 October 2021Net Asset Value
NAV: Rs.50.347 as on 29 October 2021
Expense ratio: 0.37%
|Mirae Asset Short Term Fund||Assets Under Management (AUM): Rs. 675.34 Crore as of 30 September 2021|
3-year returns: 7.61% as of 30 September 2021
NAV: Rs. 13.0641 as of 30 September 2021
Expense ratio: 0.33%
|Aditya Birla Sun Life Short Term Fund||Assets Under Management (AUM): Rs. 8226.53 Crore as of 30 September 2021|
5-year returns: 7.25% as of 2 November 2021
NAV: Rs. 39.7965 as of 3 November 2021
Expense ratio: 0.41%
|HDFC Short Term Debt Fund||Assets Under Management (AUM): Rs.19,435.54 Crore as of 30 September 2021|
5-year returns: 8.14% as of 30 September 2021
NAV: Rs.25.7862 as of 30 September 2021
Expense ratio: 0.24%
|Kotak Bond Short Term Fund||Assets Under Management (AUM): Rs.17,160.49 Crore as of 29 October 2021|
5-year returns: 7.98% as of 29 October 2021
NAV: Rs.45.02 as of 29 October 2021
Expense ratio: 0.34%
|L&T Short Term Bond Fund||Assets Under Management (AUM): Rs.4,526.38 Crore as of 30 September 2021|
5-year returns: 7.66% as of 30 September 2021
NAV: Rs.22.2353 as of 30 September 2021
Expense ratio: 0.27%
|SBI Short Term Debt Fund||Assets Under Management (AUM): Rs.20,767.01 Crore as of 30 September 2021|
5-year returns: 7.69% as of 30 September 2021
NAV: Rs.26.7714 as of 30 September 2021
Expense ratio: 0.34%
|DSP Short Term Fund||Assets Under Management (AUM): Rs.3,309.91 Crore as of 30 September 2021|
5-year returns: 7.45% as of 29 October 2021
NAV: Rs.39.91 as of 29 October 2021
Expense ratio: 0.3%
|Invesco India Short Term Funds||Assets Under Management (AUM): Rs.1,306.81 Crore as of 30 September 2021|
5-year returns: 6.63% as of 30 September 2021
NAV: Rs.3,110.2790 as of 30 September 2021
Expense ratio: 0.35%
Looking for more funds? Download the Navi app in minutes and explore a wide range of funds, including Nifty 50 Index Fund. Invest with Navi and enjoy the benefits of low-expense ratio.
If you don’t believe this type of debt fund to be a suitable option, you might want to consider investing in other debt instruments such as Ultra Short Term Funds. In this regard, you might consider reputed asset management companies, such as Navi.
The taxation on short term debt funds depends on the holding period of units. Refer to the table below to know more.
|Short term capital gains (STCG)||Short Term Capital Gains are obtained when you sell your short-duration fund units within 3 years from the date of purchase. Such gains are taxed as per your income tax slab rate.|
|Long term capital gains (LTCG)||Investors earn long term capital gains if they redeem their fund units after a holding period of 3 years. Currently, these gains are taxed at the rate of 20% post indexation.|
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.
The financial risk associated with investments in short duration funds is low. This is because the portfolio of such funds comprises financial instruments having a short maturity period in comparison to long or medium duration funds. That said, the level of risk varies from one fund to another depending upon the rating of the bonds that primarily constitute the portfolio.
Invest in market instruments
By allocating funds to short term debt funds, investors can invest in debt securities, including money market instruments, which they might not be able to purchase directly.
Also Read- Overnight Mutual Funds
Short duration funds are subject to the following risks:
Bond prices are inversely proportional to the interest rates. Therefore, the bond prices fall when the interest rates rise. On the other hand, when the interest rate goes down, bond prices go up. Nevertheless, note that the interest rate risk is moderate because these funds are invested for a short duration of 1 to 3 years.
Credit risk arises when borrowers fail to repay the principal or interest amount on time. Credit rating agencies, such as ICRA and CRISIL, assess the repayment capabilities of companies and grade their debt instruments accordingly. In case the securities are downgraded, bond prices decrease. This, in turn, has a negative impact on the net asset of the fund, leading to losses.
Also Read- Balanced Mutual Fund
Although there are some risks associated with investments in short term debt funds, you might still consider this investment vehicle to meet your financial goals owing to its ability to generate stable returns at minimal risks.
Ans: You might want to consider the following pointers before investing in short duration funds:
Experience of the fund manager
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.
Before you go…
Want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research? Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.
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.