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Short Term Debt Funds or Short Duration Funds
As the name suggests, Short term debt funds, also known as short duration funds, are typically Debt Mutual Funds that invest money for a short duration, usually less than 3 years. Also known as Short Term Income Funds, Short term debt funds invest in debt instruments and money market instruments that include Bank papers (also called Certificate of Deposits), government papers(G-secs) and commercial papers (CPs). This Mutual Fund scheme is suitable for investors who prioritise Capital preservation, but also wish to invest for a predominantly longer period to earn good returns over the long term (between 1-3 years). Investors who are willing to invest for a short duration of 1-3 years can look at short term bond funds. Short term debt products can benefit from the interest Accruals in the debt Portfolio and from the tactical exposure to higher duration debt by the respective fund manager.
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Features of Short Duration (Short-Term) Debt Funds
Some of the prominent features of short term funds are:
Liquidity
The short term debt funds are highly liquid as the maturity period is short and the investments avenues allow liquidity. Usually, there are no entry and exit loads charged on these funds. However, some short term debt funds do charge an exit load if the exit is made in a few months. So, the investors are suggested to invest wisely considering all the parameters.
Returns
When it comes to investing in Mutual Funds, returns are what people actually look for. However, this should not be the only parameter while choosing a best short term Debt fund to invest. In the recent reports, RBI stated that the investors would earn better returns by Investing in short to mid-term funds that invest in instruments having a maturity between of one to five years. Generally, the fund managers handling such funds prefer investing in high credit rating securities. Thus, ensuring the least possibility of Default by the issuers providing safety to investors’ capital. Currently, short term debt funds with a maturity period of one-three years give annualised returns of 9-10% p.a. Investors should not just chase returns, but also look at the credit quality of the portfolio. If you are a conservative investor then it makes sense to ensure that give away some returns for the extra safety.
Interest Rate Risk
Given the short term nature of these funds, the returns are not much affected by Inflation and there is a lesser interest rate risk. Typically, short term debt funds generate income from the interest earned on short to medium term Bonds. This accrual income, meaning the accumulated interest, gets added to the Net Asset Value and becomes your final return. Since you know these funds provide steady income, therefore, the returns are less volatile as compared to other long-term income funds. Some short term funds do carry a bit of interest rate risk, this can be measured by a parameter called duration of the portfolio. One can even look at the average maturity of the portfolio. Both these parameters are available on the fact sheets of the scheme. Just remember a simple rule, higher the duration or maturity higher the interest rate risk! If interest rates fall, then this is positive, however, if rates rise, then the returns would be negatively impacted.
Investment Horizons
Short term debt funds do not invest in instruments that have a very long maturity as they try to maintain lower interest rate risk and offer better tax-adjusted returns. Since these funds provide stable returns in a time period of one to three years, investors should try to match the investment timeline with the average maturity of the fund. The instruments they invest in include money Market instruments like bonds, Commercial Paper and certificate of deposits etc.
Active Management Required
Being a short term investment, these funds do not require heavy active management by the fund manager. Once the portions of the portfolio are allotted, the need of actively managing (buying and selling units) the investments is lower, having said this the fund manager needs to ensure that interest rate views are incorporated and he/she is vigilant on the credit quality of the portfolio as well as new opportunities. Their aim to provide steady returns is achieved by ensuring regular active management of the fund.
Dividend Payout
Short term debt funds also offer an option of dividend payout. With this option, the investors can get dividends at regular interval mostly monthly and fortnightly. However, the dividends paid by these funds attract a DDT (Dividend Distribution Tax) of 25% for individual investors.
Benefits of Short Duration (Short-Term) Funds
- The short term bond funds have a shorter maturity so they generally offer safe and stable returns.
- The fluctuations in interest rates of the debt market have a marginal to the insignificant effect on the returns of short term debt funds.
- Being sensitive to changing the interest rate, short term bond funds usually perform better than other funds who are affected by the market fluctuations.
- The liquidity of these funds is high. So, the investors can easily withdraw their investment in case of emergencies.
- Typically, most of the best short term debt funds do not charge any fee for withdrawal. So, there is minimal to no exit load.
- Short term debt funds are tax efficient. The tax charged on the interest of these funds is much less than that of fixed bank deposits.
Top Short Duration (Short-Term) Debt Funds 2023
Some of the best short term debt funds include-
Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 2022 (%) Debt Yield (YTM) Mod. Duration Eff. Maturity Sundaram Short Term Debt Fund Growth ₹36.3802
↑ 0.01 ₹362 0.8 11.4 12.8 5.3 4.52% 1Y 2M 13D 1Y 7M 3D Franklin India Short Term Income Plan - Retail Plan Growth ₹5,047.28
↓ -0.66 ₹439 2.9 5.1 7.9 10.5 8.6 0% 1Y 3M 25D ICICI Prudential Short Term Fund Growth ₹51.3932
↓ -0.03 ₹16,489 2.4 3.7 7.8 6 4.7 7.98% 2Y 2M 19D 6Y 2M 16D Aditya Birla Sun Life Short Term Opportunities Fund Growth ₹40.8093
↓ -0.02 ₹4,947 2.6 3.7 7.1 6.4 4.2 7.86% 2Y 29D 2Y 6M 29D HDFC Short Term Debt Fund Growth ₹27.3056
↓ -0.01 ₹12,127 2.6 3.8 7 5.7 3.5 7.7% 2Y 2M 5D 4Y 11M 23D Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 31 Dec 21 Short Duration funds having AUM/Net Assets above 100 Crore. Sorted on Last 1 Year Return.
(Erstwhile Sundaram Select Debt Short Term Asset Fund) To earn regular income by investing primarily in fixed income
securities, which may be paid as dividend or reinvested at
the option of the investor. A secondary objective is to
attempt to keep the value of its units reasonably stable. Sundaram Short Term Debt Fund is a Debt - Short term Bond fund was launched on 5 Sep 02. It is a fund with Moderately Low risk and has given a Below is the key information for Sundaram Short Term Debt Fund Returns up to 1 year are on The objective of the Scheme is to provide investors stable returns by investing in fixed income securities. Franklin India Short Term Income Plan - Retail Plan is a Debt - Short term Bond fund was launched on 31 Jan 02. It is a fund with Moderate risk and has given a Below is the key information for Franklin India Short Term Income Plan - Retail Plan Returns up to 1 year are on To generate income through investments in a range of debt and money market instruments of various maturities with a view to maximising income while maintaining the optimum balance of yield, safety and liquidity. ICICI Prudential Short Term Fund is a Debt - Short term Bond fund was launched on 25 Oct 01. It is a fund with Moderate risk and has given a Below is the key information for ICICI Prudential Short Term Fund Returns up to 1 year are on An Open ended Income scheme with the objective to generate regular income by investing primarily in investment grade fixed income securities / money market instruments with short to medium term maturities and across the credit spectrum within the universe of investment grade rating. Aditya Birla Sun Life Short Term Opportunities Fund is a Debt - Short term Bond fund was launched on 9 May 03. It is a fund with Moderate risk and has given a Below is the key information for Aditya Birla Sun Life Short Term Opportunities Fund Returns up to 1 year are on (Erstwhile HDFC Short Term Opportunities Fund) To generate regular income through investments in Debt/Money Market Instruments and Government Securities with maturities not exceeding 36 months. HDFC Short Term Debt Fund is a Debt - Short term Bond fund was launched on 25 Jun 10. It is a fund with Moderately Low risk and has given a Below is the key information for HDFC Short Term Debt Fund Returns up to 1 year are on 1. Sundaram Short Term Debt Fund
CAGR/Annualized return of 6.9% since its launch. Ranked 56 in Short term Bond category. . Sundaram Short Term Debt Fund
Growth Launch Date 5 Sep 02 NAV (31 Dec 21) ₹36.3802 ↑ 0.01 (0.03 %) Net Assets (Cr) ₹362 on 30 Nov 21 Category Debt - Short term Bond AMC Sundaram Asset Management Company Ltd Rating ☆☆ Risk Moderately Low Expense Ratio 0.96 Sharpe Ratio 0.98 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 250 Exit Load NIL Yield to Maturity 4.52% Effective Maturity 1 Year 7 Months 3 Days Modified Duration 1 Year 2 Months 13 Days Growth of 10,000 investment over the years.
Date Value 31 May 18 ₹10,000 31 May 19 ₹10,836 31 May 20 ₹10,359 31 May 21 ₹10,955 Returns for Sundaram Short Term Debt Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 31 Dec 21 Duration Returns 1 Month 0.2% 3 Month 0.8% 6 Month 11.4% 1 Year 12.8% 3 Year 5.3% 5 Year 5.6% 10 Year 15 Year Since launch 6.9% Historical performance (Yearly) on absolute basis
Year Returns 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 Fund Manager information for Sundaram Short Term Debt Fund
Name Since Tenure Data below for Sundaram Short Term Debt Fund as on 30 Nov 21
Asset Allocation
Asset Class Value Debt Sector Allocation
Sector Value Credit Quality
Rating Value Top Securities Holdings / Portfolio
Name Holding Value Quantity 2. Franklin India Short Term Income Plan - Retail Plan
CAGR/Annualized return of 7.9% since its launch. Ranked 19 in Short term Bond category. Return for 2022 was 8.6% , 2021 was 15% and 2020 was -5.3% . Franklin India Short Term Income Plan - Retail Plan
Growth Launch Date 31 Jan 02 NAV (08 Jun 23) ₹5,047.28 ↓ -0.66 (-0.01 %) Net Assets (Cr) ₹439 on 15 May 23 Category Debt - Short term Bond AMC Franklin Templeton Asst Mgmt(IND)Pvt Ltd Rating ☆☆ Risk Moderate Expense Ratio 0.04 Sharpe Ratio 0.03 Information Ratio 0.64 Alpha Ratio 0.38 Min Investment 5,000 Min SIP Investment 500 Exit Load 0-1 Years (0.5%),1 Years and above(NIL) Yield to Maturity 0% Effective Maturity 1 Year 3 Months 25 Days Modified Duration Growth of 10,000 investment over the years.
Date Value 31 May 18 ₹10,000 31 May 19 ₹10,956 31 May 20 ₹10,161 31 May 21 ₹11,137 31 May 22 ₹12,720 31 May 23 ₹13,694
Purchase not allowed Returns for Franklin India Short Term Income Plan - Retail Plan
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 31 Dec 21 Duration Returns 1 Month 1% 3 Month 2.9% 6 Month 5.1% 1 Year 7.9% 3 Year 10.5% 5 Year 6.6% 10 Year 15 Year Since launch 7.9% Historical performance (Yearly) on absolute basis
Year Returns 2022 8.6% 2021 15% 2020 -5.3% 2019 4.2% 2018 8.8% 2017 8.6% 2016 8.3% 2015 9.1% 2014 11.7% 2013 9% Fund Manager information for Franklin India Short Term Income Plan - Retail Plan
Name Since Tenure Santosh Kamath 31 Jan 02 21.26 Yr. Kunal Agrawal 31 Jan 02 21.26 Yr. Data below for Franklin India Short Term Income Plan - Retail Plan as on 15 May 23
Asset Allocation
Asset Class Value Cash 7.97% Debt 92.03% Debt Sector Allocation
Sector Value Corporate 92.03% Cash Equivalent 7.97% Credit Quality
Rating Value BBB 100% Top Securities Holdings / Portfolio
Name Holding Value Quantity Andhra Pradesh Capital Region Development Authority
Debentures | -50% ₹218 Cr 10,648 Andhra Pradesh Capital Region Development Authority
Debentures | -41% ₹180 Cr 8,815 SBI Overnight Fund Dir Gr
Investment Fund | -5% ₹22 Cr 60,712
↑ 11,629 Andhra Pradesh Capital Region Development Authority
Debentures | -2% ₹7 Cr 320
↓ -215 Rivaaz TRade Ventures Private Limited
Debentures | -0% ₹0 Cr 1,000
↑ 1,000 Call, Cash & Other Assets
CBLO | -3% ₹13 Cr 3. ICICI Prudential Short Term Fund
CAGR/Annualized return of 7.9% since its launch. Ranked 11 in Short term Bond category. Return for 2022 was 4.7% , 2021 was 3.9% and 2020 was 10.6% . ICICI Prudential Short Term Fund
Growth Launch Date 25 Oct 01 NAV (08 Jun 23) ₹51.3932 ↓ -0.03 (-0.06 %) Net Assets (Cr) ₹16,489 on 30 Apr 23 Category Debt - Short term Bond AMC ICICI Prudential Asset Management Company Limited Rating ☆☆☆☆ Risk Moderate Expense Ratio 1.14 Sharpe Ratio 0.52 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 1,000 Exit Load 0-7 Days (0.25%),7 Days and above(NIL) Yield to Maturity 7.98% Effective Maturity 6 Years 2 Months 16 Days Modified Duration 2 Years 2 Months 19 Days Growth of 10,000 investment over the years.
Date Value 31 May 18 ₹10,000 31 May 19 ₹10,867 31 May 20 ₹11,946 31 May 21 ₹12,842 31 May 22 ₹13,215 31 May 23 ₹14,222 Returns for ICICI Prudential Short Term Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 31 Dec 21 Duration Returns 1 Month 0.6% 3 Month 2.4% 6 Month 3.7% 1 Year 7.8% 3 Year 6% 5 Year 7.3% 10 Year 15 Year Since launch 7.9% Historical performance (Yearly) on absolute basis
Year Returns 2022 4.7% 2021 3.9% 2020 10.6% 2019 9.7% 2018 5.8% 2017 5.9% 2016 11.1% 2015 8% 2014 11.6% 2013 7.2% Fund Manager information for ICICI Prudential Short Term Fund
Name Since Tenure Manish Banthia 19 Nov 09 13.45 Yr. Nikhil Kabra 29 Dec 20 2.33 Yr. Data below for ICICI Prudential Short Term Fund as on 30 Apr 23
Asset Allocation
Asset Class Value Cash 14.4% Debt 85.6% Debt Sector Allocation
Sector Value Government 51.75% Corporate 41.21% Cash Equivalent 6.32% Securitized 0.72% Credit Quality
Rating Value AA 14.04% AAA 85.96% Top Securities Holdings / Portfolio
Name Holding Value Quantity 8.51% Govt Stock 2033
Sovereign Bonds | -10% ₹1,695 Cr 169,624,650 7.26% Govt Stock 2033
Sovereign Bonds | -9% ₹1,527 Cr 149,982,080
↓ -8,000,000 7.93% Govt Stock 2034
Sovereign Bonds | -5% ₹937 Cr 95,824,740 7.38% Govt Stock 2027
Sovereign Bonds | -5% ₹829 Cr 81,699,900 7.26% Govt Stock 2032
Sovereign Bonds | -5% ₹819 Cr 80,731,260
↑ 15,000,000 7.879999999999999% Govt Stock 2028
Sovereign Bonds | -4% ₹719 Cr 72,756,299 Pipeline Infrastructure Limited
Debentures | -2% ₹367 Cr 3,629 National Bank For Agriculture And Rural Development
Debentures | -2% ₹352 Cr 35,000 Small Industries Development Bank Of India
Debentures | -2% ₹302 Cr 3,000 National Bank For Agriculture And Rural Development
Debentures | -2% ₹301 Cr 30,000 4. Aditya Birla Sun Life Short Term Opportunities Fund
CAGR/Annualized return of 7.3% since its launch. Ranked 18 in Short term Bond category. Return for 2022 was 4.2% , 2021 was 3.8% and 2020 was 11.1% . Aditya Birla Sun Life Short Term Opportunities Fund
Growth Launch Date 9 May 03 NAV (08 Jun 23) ₹40.8093 ↓ -0.02 (-0.04 %) Net Assets (Cr) ₹4,947 on 30 Apr 23 Category Debt - Short term Bond AMC Birla Sun Life Asset Management Co Ltd Rating ☆☆☆☆ Risk Moderate Expense Ratio 1.11 Sharpe Ratio -0.22 Information Ratio 0 Alpha Ratio 0 Min Investment 1,000 Min SIP Investment 1,000 Exit Load 0-90 Days (0.5%),90 Days and above(NIL) Yield to Maturity 7.86% Effective Maturity 2 Years 6 Months 29 Days Modified Duration 2 Years 29 Days Growth of 10,000 investment over the years.
Date Value 31 May 18 ₹10,000 31 May 19 ₹10,896 31 May 20 ₹11,761 31 May 21 ₹12,842 31 May 22 ₹13,251 31 May 23 ₹14,145 Returns for Aditya Birla Sun Life Short Term Opportunities Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 31 Dec 21 Duration Returns 1 Month 0.6% 3 Month 2.6% 6 Month 3.7% 1 Year 7.1% 3 Year 6.4% 5 Year 7.2% 10 Year 15 Year Since launch 7.3% Historical performance (Yearly) on absolute basis
Year Returns 2022 4.2% 2021 3.8% 2020 11.1% 2019 8.5% 2018 6.5% 2017 5.6% 2016 11.3% 2015 8.4% 2014 11.3% 2013 10.1% Fund Manager information for Aditya Birla Sun Life Short Term Opportunities Fund
Name Since Tenure Kaustubh Gupta 11 Sep 14 8.64 Yr. Mohit Sharma 6 Aug 20 2.73 Yr. Dhaval Joshi 21 Nov 22 0.44 Yr. Data below for Aditya Birla Sun Life Short Term Opportunities Fund as on 30 Apr 23
Asset Allocation
Asset Class Value Cash 11.27% Debt 88.73% Debt Sector Allocation
Sector Value Corporate 54.89% Government 34.36% Cash Equivalent 7.54% Securitized 3.21% Credit Quality
Rating Value AA 19.96% AAA 80.04% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.26% Govt Stock 2032
Sovereign Bonds | -6% ₹340 Cr 33,511,700 National Bank For Agriculture And Rural Development
Debentures | -6% ₹302 Cr 30,000 Power Finance Corporation Ltd.
Debentures | -3% ₹151 Cr 15,000 National Bank For Agriculture And Rural Development
Debentures | -3% ₹150 Cr 15,000 Housing Development Finance Corporation Ltd
Debentures | -3% ₹149 Cr 1,500 7.26% Govt Stock 2033
Sovereign Bonds | -3% ₹143 Cr 14,000,000
↑ 14,000,000 Shriram Finance Limited
Debentures | -3% ₹140 Cr 1,400 Bajaj Housing Finance Limited
Debentures | -3% ₹138 Cr 1,400 Sundew Properties Limited
Debentures | -2% ₹100 Cr 1,020 Bharti Telecom Limited
Debentures | -2% ₹100 Cr 1,000 5. HDFC Short Term Debt Fund
CAGR/Annualized return of 8.1% since its launch. Ranked 30 in Short term Bond category. Return for 2022 was 3.5% , 2021 was 3.9% and 2020 was 11% . HDFC Short Term Debt Fund
Growth Launch Date 25 Jun 10 NAV (08 Jun 23) ₹27.3056 ↓ -0.01 (-0.05 %) Net Assets (Cr) ₹12,127 on 30 Apr 23 Category Debt - Short term Bond AMC HDFC Asset Management Company Limited Rating ☆☆☆ Risk Moderately Low Expense Ratio 0.74 Sharpe Ratio -0.39 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 300 Exit Load NIL Yield to Maturity 7.7% Effective Maturity 4 Years 11 Months 23 Days Modified Duration 2 Years 2 Months 5 Days Growth of 10,000 investment over the years.
Date Value 31 May 18 ₹10,000 31 May 19 ₹10,886 31 May 20 ₹12,015 31 May 21 ₹12,938 31 May 22 ₹13,286 31 May 23 ₹14,184 Returns for HDFC Short Term Debt Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 31 Dec 21 Duration Returns 1 Month 0.7% 3 Month 2.6% 6 Month 3.8% 1 Year 7% 3 Year 5.7% 5 Year 7.3% 10 Year 15 Year Since launch 8.1% Historical performance (Yearly) on absolute basis
Year Returns 2022 3.5% 2021 3.9% 2020 11% 2019 9.7% 2018 7% 2017 6.5% 2016 9.3% 2015 8.7% 2014 10.4% 2013 8.4% Fund Manager information for HDFC Short Term Debt Fund
Name Since Tenure Anil Bamboli 25 Jun 10 12.85 Yr. Priya Ranjan 1 May 22 1 Yr. Data below for HDFC Short Term Debt Fund as on 30 Apr 23
Asset Allocation
Asset Class Value Cash 8.53% Debt 91.47% Debt Sector Allocation
Sector Value Government 47.66% Corporate 46.56% Cash Equivalent 5% Securitized 0.78% Credit Quality
Rating Value AA 18.77% AAA 81.23% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.879999999999999% Govt Stock 2028
Sovereign Bonds | -5% ₹573 Cr 58,000,000 7.38% Govt Stock 2027
Sovereign Bonds | -3% ₹421 Cr 41,500,000 7.1% Govt Stock 2029
Sovereign Bonds | -3% ₹372 Cr 37,000,000 7.26% Govt Stock 2033
Sovereign Bonds | -3% ₹372 Cr 36,500,000
↑ 16,500,000 6.79% Govt Stock 2027
Sovereign Bonds | -3% ₹363 Cr 36,500,000 7.26% Govt Stock 2032
Sovereign Bonds | -3% ₹350 Cr 34,500,000
↑ 5,000,000 Samvardhana Motherson International Limited
Debentures | -2% ₹299 Cr 3,000 Bharti Telecom Limited
Debentures | -2% ₹276 Cr 2,750 State Bank Of India
Debentures | -2% ₹251 Cr 2,500 7.59% Govt Stock 2026
Sovereign Bonds | -2% ₹244 Cr 24,000,000
Short Term Debt Fund Taxation
Tax implication on debt funds is computed in the following manner-
Short Term Capital Gains
If the holding period of a debt investment is less than 36 months, then it is classified as a short-term investment and these are taxed as per individual's tax slab.
Long Term Capital Gains
If the holding period of debt investment is more than 36 months, then it is classified as a long-term investment and is taxed at 20% with an indexation benefit.
| Capital Gains | Investment Holding Gains | Taxation |
|---|---|---|
| Short Term Capital Gains | Less than 36 months | As per individual's tax slab |
| Long Term Capital Gains | More than 36 months | 20% with indexation benefits |
Risks Involved with Short Term Mutual Funds
Alike all the financial securities, Short term debt funds have certain flaws as well. Some of the risks accompanying these funds include-
Risk of Rising Inflation
Short term debt funds are ideal having a short term financial goal of one to three years and not for long term. So, the investors who are looking for long term investments should invest in Equity Funds, which offers the benefits of rising inflation while yielding good returns.
Risk of Changing Interest Rates
The change in interest rate in the Economy has a little effect on short term debt funds, though the impact is very marginal. As the tenure of duration is short, the impact of interest rate changes in insignificant. However, investors should always look at the duration or maturity of the fund before making any conclusions. A high duration/maturity exposes the Fund to interest rate risk.
Risk of Credit
Usually, short term debt funds invest in instruments that have a high credit rating and have a safe track record. However, there are times when the asset managing company that is managing the fund defaults, the investor has to take the challenge of managing the risk on his own. So, the investors must keep this in mind and invest wisely. Hence, it is always advisable to look a getting into a fund with a good quality portfolio.
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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