A short-term mutual fund is an open-ended investment instrument with a tenure ranging from one year to three years. The maturity of a short-term mutual fund scheme would depend on the tenure of its underlying assets, which are usually debt or money-market products. These funds are usually low-risk and quite liquid. The best short-term mutual funds have the potential to deliver better returns than traditional fixed-income investment vehicles, which are usually well-guarded against interest rate fluctuations due to the short maturity terms of their underlying assets, and can offer instant diversification as they can invest in a broad spectrum of debt and money-market products.
We have finely listed out the best short-term funds, to invest in. Let’s dive in!
|Nippon India Short Term Fund Direct Growth
Expense Ratio: 0.34%
AUM: ₹5147.42 Cr
|Axis Short Term Direct Fund Growth
Expense Ratio: 0.3%
AUM: ₹7096.45 Cr
|ICICI Prudential Short Term Fund Growth
Expense Ratio: 1.07%
AUM: ₹14561.49 Cr
|Canara Robeco Short Duration Fund Direct Growth
Expense Ratio: 0.47%
AUM: ₹520.12 Cr
|HDFC Short Term Debt Fund Direct Plan Growth
Expense Ratio: 0.29%
AUM: ₹11028.58 Cr
|IDFC Bond Fund Short Term Plan Direct Growth
Expense Ratio: 0.3%
|Kotak Bond Short Term Fund Direct Growth
Expense Ratio: 0.36%
|HSBC Short Duration Fund Direct Growth
Expense Ratio: 0.27%
AUM: ₹3592.2 Cr
|Aditya Birla Sun Life Short Term Direct Fund Growth
Expense Ratio: 0.38%
AUM: ₹5045.21 Cr
|DSP Short Term Fund Direct Plan Growth
Expense Ratio: 0.3%
AUM: ₹2821.74 Cr
|SBI Short Term Debt Fund Direct Growth
Expense Ratio: 0.35%
AUM: ₹13289.8 Cr
|Invesco India Short Term Fund Growth
Expense Ratio: 1.2%
AUM: ₹397.99 Cr
|IDBI Short Term Bond Fund Growth
Expense Ratio: 0.75%
AUM: ₹350.16 Cr
|Tata Short Term Bond Direct Plan Growth
Expense Ratio: 0.37%
AUM: ₹2,271.32 Cr
|Sundaram Short Duration Fund Growth
Expense Ratio: 0.93%
Expected return rate (p.a)
Time Period (Years)
Nippon India Short Term Fund is often seen as one of the best short duration mutual funds. It usually invests in money-market and debt instruments with maturity terms between one year and three years. It aims to generate stable returns for its investors over the entire duration of the scheme. In terms of the fund’s sectoral allocation weightage, financial services takes the top spot.
If you had invested ₹10,000 on 30th December, 2022, your 1-year, 3-year, and 5-year CAGR returns would have been ₹10,320, ₹11,797, and ₹13,611 respectively.
It is one of the leading short-duration mutual funds in the country. The portfolio of this open-ended debt fund is composed of debt and money market assets that have a fixed maturity period between 12 months and 36 months. It aims to deliver stable, risk-adjusted, short-term returns, while ensuring sufficient liquidity for investors. It is managed by Mr. Devang Shah and has no exit load. This fund invests in a range of sovereign bonds, debentures, and certificates of deposit (CD).
ICICI Prudential Short Term Fund is considered to be one of the best short-term mutual funds, which aims to generate capital appreciation by investing in a diverse range of debt and money market instruments while preserving the right balance and combination of yield, liquidity, and safety. Currently, the scheme invests in 107 securities, ranging from non-convertible debentures (NCDs) to government bonds to state development loans (SDLs) among others. The fund doesn’t charge any exit load.
It’s a short-term debt fund which invests in a variety of debt and money market instruments with different maturity terms and risk profiles. It has also delivered better 5-year and 10-year returns than the category average. Launched on 19th December, 1987, the fund currently invests in 23 instruments, such fund sovereign bonds, CDs, and NCDs among others.
If you’re planning a short-term mutual fund investment, you could consider HDFC Short Term Debt Fund. The fund invests in a range of debt and money market instruments, with tenures between 1 year and 3 years, and uses CRISIL Short Duration Fund BII Index as benchmark. In terms of sectoral allocation weightage, the fund has maximum exposure to financial services and the least to communications. You may be pleased to know that the fund charges no exit load.
IDFC Bond Fund Short Term Plan is one of the best short-term funds. The fund is a mix of short duration debt instruments and money market products. The minimum recommended investment horizon for this fund is 1 year. What’s better is that it has no exit load. The fund has delivered better-than-average 3-year, 5-year, and 10-year returns.
It is a top short-duration, open-ended debt scheme that invests in a host of debt instruments and money market vehicles with maturity terms between 1 year and 3 years. It currently holds 78 funds in its portfolio, which is a mix of government securities, corporate bonds, NCDs, and secutirised debts among others.
If you had invested ₹10,000 in the fund, then based on its performance on 16th February, 2023, you would have made ₹10,385.71 in 1 year, ₹11,842.38 in 3 years, and ₹14,199.81 in 5 years.
This fund could be suitable for you if your investment horizon is between 1 year and 3 years. The fund has invested close to 69% in debt, of which 50.19% is in low-risk securities. It has also delivered better-than-average 5-year and 10-year returns. The fund is currently managed by Shiram Ramanathan and Jalpan Shah and has 43 assets in its portfolio.
Launched on May 9, 2023, this debt fund has a yield-to-maturity (YTM) of 7.18%. YTM is defined as the speculative rate of return of a fixed-rate financial instrument. The fund currently holds 104 securities, including a variety of bonds, government securities, and CDs among others. The portfolio has almost a 50% exposure to the financial services sector and close to 21% to sovereign bonds.
This fund is appropriate for investors with an investment horizon of at least 12 months. It aims to deliver steady returns in line with the performance of its underlying assets, while giving investors access to liquidity and a chance to diversify their risks. Close to 71% of the fund portfolio is exposed to financial services, with energy having the least exposure (in terms of sectoral allocation).
This open-ended short-term debt scheme was launched on 27th July, 2007. It uses the CRISIL SHORT DURATION FUND AII INDEX as its benchmark. The fund aims to provide risk-adjusted returns by investing its corpus in a wide spectrum of debt and money-market instruments. Currently, the fund has investments in a total of 75 assets. According to the current holding pattern, the fund has almost 93% investment in debt, and almost 62% in low-risk securities.
A conversation about the best short-term mutual funds may remain incomplete without at least a reference to this fund. Managed by Mr. Krishna Cheemalapati and Mr. Vikas Garg, it charges no entry or exit load. Currently, 88.2% of the fund’s corpus is invested in a variety of debt assets, with the balance in cash. It is invested in 21 assets, with maximum exposure to financial services.
This fund could be a suitable option for those who want steady, risk-adjusted returns, have an investment horizon of 1 to 3 years, or want to rebalance their portfolio consisting of high-risk assets, such as equities and fixed income instruments, such as savings and fixed deposits. The fund has 25.19% in debentures, 14.89% in government securities, 9.43% in CDs, 32.23% in T-Bills, and about 1.09% in cash and cash receivables.
This could be a suitable investment option for investors who want risk-adjusted, regular returns for a short period of 1 to 3 years, without compromising on liquidity. This debt scheme is currently managed by Abhishek Sonthalia and Murthy Nagarajan. It has delivered better 3-year and 10-year returns than its category average. The fund has close to 92% invested in debt, of which close to 36% is allocated to government securities.
Since its inception, the fund has delivered a return of 106.84% in absolute terms. Another fun fact? Based on its NAV on 16th February, 2023, ₹10,000 invested on 2nd January, 2013 would be valued at ₹20,684.40 today.
This short-duration mutual fund could be suitable for investors who want to grow their wealth by investing in relatively low-risk fixed income securities with tenures between 1 and 3 years. Currently, 75.7% of its corpus is invested in various debt and money market instruments with the balance in cash. The regular plan of the fund was launched in September 2002 and the direct plan in January 2013. It uses NIFTY Short Duration Debt Index B-II as its Tier I benchmark. The fund has delivered an absolute return of 270.47% since its inception.
Short-term mutual funds are debt funds that invest in almost the whole spectrum of money market securities and bonds which have fixed maturity terms between 1 year and 3 years. While such funds invest a major portion of their corpus in short-term assets, a small portion may be exposed to debt instruments with longer tenures. In fact, the risk profile of a short-duration fund is determined based on its level of exposure to longer term debts. These funds generate returns for their investors through the interest payments and capital gains of the underlying assets.
A short-term fund can invest in a combination of treasury bills, sovereign bonds, SDLs, CDs, NCDs, debentures, and other money market schemes. The allocation weightage is decided based on the market dynamics, price fluctuations, stated objectives, and fund policies.
Short term fund investment could be ideal for:
These funds are recommended for investors who want to stay invested for more than a year during which time they may be able to beat the returns generated by fixed income instruments, such as bank savings.
Investors willing to invest in debt funds for the first time can consider investing in short term mutual funds. These funds carry relatively low risk and could offer better returns than a savings account during an investment horizon. Moreover, short-term funds’ returns are usually higher than overnight or liquid funds.
Short duration funds generally carry lower risk than medium-term and long-term market-linked investments. Therefore, these have the potential to provide stable returns over a short duration, and even beat returns provided by fixed-income investment vehicles.
Short term debt funds generally have a higher earnings potential than bank deposits, as they earn capital gains as well as interest income. So, these funds, in addition to being quite liquid, help investors maximise the profit margin of their investment portfolio in the short-term.
Looking for the best mutual funds for short-term investment? Here are some things which you should definitely consider before investing. What is your investment goal and horizon? What is your tax position? Will investing in debt funds help you manage or mitigate the risks of your overall investment portfolio? Once you have the answers to these questions, look for any asset management company (AMC) that offers a short-term debt fund. You can also consider a reliable aggregator. Here’s what you should do next:
Here is a guide on how to invest in short term mutual funds:
Download your preferred investment app or visit AMC website
Fill in all the necessary details.
Complete the KYC process.
Choose the short-term mutual fund of your choice.
Choose between SIP and Lump sum.
Link your bank account, set up auto-debit, and start investing.
Irrespective of your investment horizon, you must ensure to consider the following factors before investing in short term funds:
The expense ratio is a fee that an AMC charges to cover a scheme’s operating expenses, which include administrative fees, fund manager’s fees, etc. As per SEBI, AMCs cannot charge more than 2% of the fund’s AUM as expense ratio. Remember to compare the expense ratio of different funds before investing.
Another essential factor to consider before investing in short term funds is a scheme’s past returns. This could give you an idea about its stability and resilience against market volatilities. However, note that the fund’s past performance does not guarantee future results.
Before investing, you must identify your financial goals and set expectations, in line with the returns potential of your chosen fund.
Select a fund based on your risk tolerance. The risk profile of a short-term fund depends on the level of its exposure to long-term debt instruments. So, check the asset holding pattern of the fund and the riskometre before investing.
The fund manager’s investing and management style and ability to rebalance the fund’s portfolio, based on risks and market dynamics, may be critical to the fund’s success. So, do check their profile and experience.
Before investing in short-duration mutual funds, it may be a good idea to understand your tax obligations. There could be two types of tax that you would have to deal with:
The rate of tax applied on your capital gains would vary, based on the duration of your investment as follows:
|Short-Term Capital Gains (STCG)
|Less than 3 years
|Depends on your income tax slab
|Long-Term Capital Gains (LTCG)
|3 years or more
|20% after indexation
In addition, you’ll also be charged cess and surcharge.
Some short-term debt funds offer regular dividends, which are taxable. According to the amendments made in Finance Act 2020, now dividends are taxed according to the income tax slab of the investor.
The best short-term mutual funds generally have the potential to deliver attractive returns, liquidity, and easy access to low-risk debt securities with maturity terms between 1 year and 3 years. While these funds have the potential to offer better returns than savings accounts and other fixed-income schemes, you must consider your financial goals and risk tolerance before investing.
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Short term funds invest in both very short term and short term debt instruments. The portfolio constituents of these funds include bonds, commercial paper, treasury bills, certificate of deposits, and more. Investors might want to check the portfolio constituents of a fund before investing.
Yes, for a short investment duration of 3 to 6 months, you can choose to invest in liquid funds or ultra short term mutual funds. Liquid mutual funds invest in debt instruments like certificate of deposits, government bonds, etc., for a duration of around 3 months.
Short duration funds generally invest in companies featuring a proven track record of loan repayment. Their lending duration is not long; you might witness some volatility on a really short term basis. But, it can yield better returns for an investment period of at least 1 to 2 years.
A hike in the interest rates is always bad news for mutual funds. This is because as the interest rate increases, the NAV (net asset value) of debt funds decreases. This happens due to an inverse relationship between price and interest rate.
There are quite a few options that you could consider, such as:
1. Nippon India Short Term Fund
2. Axis Short Term Fund
3. ICICI Prudential Short Term Fund
4. Canara Robeco Short Duration Fund
5. HDFC Short Term Debt Fund
It depends on your risk perception and tolerance. But, in general, short-term mutual fund investments are low-risk as they invest in securities with short limited maturity terms. But please note that based on the amount of corpus a short-term fund invests in long-term debt instruments, its risk profile would be decided. However, if you’re looking to rebalance your portfolio, investment in these funds could be useful.
For short-term investments with a relatively low risk profile and high returns potential, you could consider short-term mutual funds that have tenures between 1 year and 3 years.
Short-term mutual funds are schemes that invest in a wide spectrum of debt and money market instruments with maturity terms between 1 year and 3 years. These funds could be suitable for investors who want stable, risk-adjusted returns in the short-term and can stay invested for at least 12 to 18 months.
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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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