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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 2021
Some of the best short term debt funds include-
Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 2020 (%) Debt Yield (YTM) Mod. Duration Eff. Maturity Franklin India Short Term Income Plan - Retail Plan Growth ₹4,092.62
↓ -1.07 ₹1,100 -0.8 2.9 13.6 2.9 -5.3 0% 3Y 18D Sundaram Short Term Debt Fund Growth ₹34.6422
↓ -0.04 ₹297 6.1 7.2 9.2 4.6 9.2 4.28% 1Y 5M 19D 1Y 7M 20D UTI Short Term Income Fund Growth ₹24.6516
↓ -0.01 ₹3,602 3.7 5.3 7.7 4.6 10.5 4.7% 1Y 4M 2D 2Y 8M 5D Nippon India Short Term Fund Growth ₹42.0806
↓ -0.02 ₹10,189 1.5 3.5 6.3 8.5 9.5 4.98% 1Y 10M 17D 2Y 4M 28D ICICI Prudential Short Term Fund Growth ₹47.1717
↓ -0.02 ₹20,850 1.4 3 5.9 8.7 10.6 5.25% 2Y 4M 10D 4Y 1M 17D Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 24 Sep 21 Short Duration funds having AUM/Net Assets above 100 Crore. Sorted on Last 1 Year Return.
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 (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 To generate steady and reasonable income with low risk and high level of liquidity from a portfolio of money market securities and high quality debt. UTI Short Term Income Fund is a Debt - Short term Bond fund was launched on 19 Sep 07. It is a fund with Moderate risk and has given a Below is the key information for UTI Short Term Income Fund Returns up to 1 year are on The primary investment objective of the scheme is to generate stable returns for investors with a short term investment horizon by investing in fixed income
securitites of a short term maturity. Nippon India Short Term Fund is a Debt - Short term Bond fund was launched on 18 Dec 02. It is a fund with Moderately Low risk and has given a Below is the key information for Nippon India Short Term Fund 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 1. Franklin India Short Term Income Plan - Retail Plan
CAGR/Annualized return of 7.4% since its launch. Ranked 19 in Short term Bond category. Return for 2020 was -5.3% , 2019 was 4.2% and 2018 was 8.8% . Franklin India Short Term Income Plan - Retail Plan
Growth Launch Date 31 Jan 02 NAV (24 Sep 21) ₹4,092.62 ↓ -1.07 (-0.03 %) Net Assets (Cr) ₹1,100 on 31 Aug 21 Category Debt - Short term Bond AMC Franklin Templeton Asst Mgmt(IND)Pvt Ltd Rating ☆☆ Risk Moderate Expense Ratio 1.5 Sharpe Ratio 1.74 Information Ratio -1.13 Alpha Ratio 8.21 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 3 Years 18 Days Modified Duration Growth of 10,000 investment over the years.
Date Value 31 Aug 16 ₹10,000 31 Aug 17 ₹11,045 31 Aug 18 ₹11,769 31 Aug 19 ₹12,675 31 Aug 20 ₹11,122 31 Aug 21 ₹12,558
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 24 Sep 21 Duration Returns 1 Month 2% 3 Month -0.8% 6 Month 2.9% 1 Year 13.6% 3 Year 2.9% 5 Year 4.9% 10 Year 15 Year Since launch 7.4% Historical performance (Yearly) on absolute basis
Year Returns 2020 -5.3% 2019 4.2% 2018 8.8% 2017 8.6% 2016 8.3% 2015 9.1% 2014 11.7% 2013 9% 2012 10% 2011 9% Fund Manager information for Franklin India Short Term Income Plan - Retail Plan
Name Since Tenure Santosh Kamath 24 Jun 16 5.19 Yr. Kunal Agrawal 24 Jun 16 5.19 Yr. Data below for Franklin India Short Term Income Plan - Retail Plan as on 31 Aug 21
Asset Allocation
Asset Class Value Cash 32.87% Debt 67.13% Debt Sector Allocation
Sector Value Corporate 67.13% Cash Equivalent 32.87% Credit Quality
Rating Value A 81.98% AA 17.93% AAA 0.09% Top Securities Holdings / Portfolio
Name Holding Value Quantity SBI Overnight Fund Dir Gr
Investment Fund | -29% ₹598 Cr 1,764,363
↑ 1,049,472 Andhra Pradesh Capital Region Development Authority
Debentures | -12% ₹237 Cr 11,135 Andhra Pradesh Capital Region Development Authority
Debentures | -11% ₹226 Cr 10,675 Edelweiss Agri Value Chain Limited
Debentures | -9% ₹180 Cr 3,100 Edelweiss Commodities Services Limited
Debentures | -9% ₹175 Cr 1,768
↓ -252 Narmada Wind Energy Private Limited
Debentures | -7% ₹137 Cr 1,660 Renew Wind Energy (Rajasthan One) Private Limited
Debentures | -5% ₹108 Cr 1,280 U.P. Power Corporation Limited
Debentures | -3% ₹68 Cr 1,349 Edelweiss Commodities Services Limited
Debentures | -3% ₹58 Cr 1,000 Hinduja Leyland Finance Limited
Debentures | -3% ₹56 Cr 540
↓ -04 2. Sundaram Short Term Debt Fund
CAGR/Annualized return of 6.7% since its launch. Ranked 56 in Short term Bond category. Return for 2020 was 9.2% , 2019 was -5.1% and 2018 was 6.2% . Sundaram Short Term Debt Fund
Growth Launch Date 5 Sep 02 NAV (24 Sep 21) ₹34.6422 ↓ -0.04 (-0.11 %) Net Assets (Cr) ₹297 on 31 Aug 21 Category Debt - Short term Bond AMC Sundaram Asset Management Company Ltd Rating ☆☆ Risk Moderately Low Expense Ratio 0.96 Sharpe Ratio 0.69 Information Ratio -1.09 Alpha Ratio -0.58 Min Investment 5,000 Min SIP Investment 250 Exit Load NIL Yield to Maturity 4.28% Effective Maturity 1 Year 7 Months 20 Days Modified Duration 1 Year 5 Months 19 Days Growth of 10,000 investment over the years.
Date Value 31 Aug 16 ₹10,000 31 Aug 17 ₹10,732 31 Aug 18 ₹11,231 31 Aug 19 ₹10,700 31 Aug 20 ₹11,708 31 Aug 21 ₹12,199 Returns for Sundaram Short Term Debt Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 24 Sep 21 Duration Returns 1 Month 5.3% 3 Month 6.1% 6 Month 7.2% 1 Year 9.2% 3 Year 4.6% 5 Year 5% 10 Year 15 Year Since launch 6.7% Historical performance (Yearly) on absolute basis
Year Returns 2020 9.2% 2019 -5.1% 2018 6.2% 2017 5.6% 2016 9.2% 2015 7.3% 2014 10.2% 2013 9.9% 2012 10.9% 2011 12.7% Fund Manager information for Sundaram Short Term Debt Fund
Name Since Tenure Dwijendra Srivastava 1 Jun 12 9.26 Yr. Sandeep Agarwal 1 Jun 12 9.26 Yr. Data below for Sundaram Short Term Debt Fund as on 31 Aug 21
Asset Allocation
Asset Class Value Cash 24.01% Debt 75.99% Debt Sector Allocation
Sector Value Credit Quality
Rating Value AAA 100% Top Securities Holdings / Portfolio
Name Holding Value Quantity 5.63% Govt Stock 2026
Sovereign Bonds | -10% ₹30 Cr 3,000,000
↑ 1,000,000 7.16% Govt Stock 2023
Sovereign Bonds | -7% ₹21 Cr 2,000,000 National Bank For Agriculture And Rural Development
Debentures | -7% ₹20 Cr 200
↑ 50 5.22% GOI 2025
Sovereign Bonds | -7% ₹20 Cr 2,000,000
↑ 1,000,000 Reliance Ports and Terminals Limited
Debentures | -5% ₹16 Cr 150 Export-Import Bank of India
Debentures | -5% ₹16 Cr 150
↑ 150 LIC Housing Finance Limited
Debentures | -4% ₹10 Cr 100 Power Finance Corporation Limited
Debentures | -3% ₹10 Cr 100 Housing Development Finance Corporation Limited
Debentures | -3% ₹10 Cr 100 Housing Development Finance Corporation Limited
Debentures | -3% ₹10 Cr 100
↑ 100 3. UTI Short Term Income Fund
CAGR/Annualized return of 6.6% since its launch. Ranked 10 in Short term Bond category. Return for 2020 was 10.5% , 2019 was -3.9% and 2018 was 6% . UTI Short Term Income Fund
Growth Launch Date 19 Sep 07 NAV (24 Sep 21) ₹24.6516 ↓ -0.01 (-0.03 %) Net Assets (Cr) ₹3,602 on 31 Aug 21 Category Debt - Short term Bond AMC UTI Asset Management Company Ltd Rating ☆☆☆☆ Risk Moderate Expense Ratio 0.93 Sharpe Ratio 1.43 Information Ratio -0.75 Alpha Ratio 0.15 Min Investment 10,000 Min SIP Investment 500 Exit Load NIL Yield to Maturity 4.7% Effective Maturity 2 Years 8 Months 5 Days Modified Duration 1 Year 4 Months 2 Days Growth of 10,000 investment over the years.
Date Value 31 Aug 16 ₹10,000 31 Aug 17 ₹10,861 31 Aug 18 ₹11,363 31 Aug 19 ₹10,879 31 Aug 20 ₹12,010 31 Aug 21 ₹12,667 Returns for UTI Short Term Income Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 24 Sep 21 Duration Returns 1 Month 2.7% 3 Month 3.7% 6 Month 5.3% 1 Year 7.7% 3 Year 4.6% 5 Year 5.2% 10 Year 15 Year Since launch 6.6% Historical performance (Yearly) on absolute basis
Year Returns 2020 10.5% 2019 -3.9% 2018 6% 2017 6.1% 2016 10.1% 2015 8.3% 2014 10.9% 2013 9% 2012 11.2% 2011 10.7% Fund Manager information for UTI Short Term Income Fund
Name Since Tenure Sudhir Agarwal 25 Oct 12 8.77 Yr. Data below for UTI Short Term Income Fund as on 31 Aug 21
Asset Allocation
Asset Class Value Cash 15.3% Debt 84.7% Debt Sector Allocation
Sector Value Government 52.35% Corporate 30.19% Cash Equivalent 15.3% Securitized 2.16% Credit Quality
Rating Value AA 14.63% AAA 85.37% Top Securities Holdings / Portfolio
Name Holding Value Quantity GOVT STOCK
Sovereign Bonds | -9% ₹328 Cr 3,250,000,000 6.64% Govt Stock 2035
Sovereign Bonds | -6% ₹221 Cr 2,250,000,000 8.83% Govt Stock 2023
Sovereign Bonds | -5% ₹164 Cr 1,500,000,000 Axis Finance Limited
Debentures | -4% ₹159 Cr 1,600 Housing Development Finance Corporation Limited
Debentures | -4% ₹126 Cr 1,250 National Bank For Agriculture And Rural Development
Debentures | -4% ₹126 Cr 1,250 Housing and Urban Development Corporation Limited (Hudco)
Debentures | -3% ₹103 Cr 1,000 Hindustan Petroleum Corporation Limited
Debentures | -3% ₹101 Cr 1,000 Food Corporation Of India
Debentures | -3% ₹100 Cr 1,000
↑ 1,000 8.24% Tamil Nadu SDL 2025
Sovereign Bonds | -2% ₹87 Cr 800,000,000 4. Nippon India Short Term Fund
CAGR/Annualized return of 8% since its launch. Ranked 17 in Short term Bond category. Return for 2020 was 9.5% , 2019 was 9.4% and 2018 was 5.5% . Nippon India Short Term Fund
Growth Launch Date 18 Dec 02 NAV (24 Sep 21) ₹42.0806 ↓ -0.02 (-0.05 %) Net Assets (Cr) ₹10,189 on 31 Aug 21 Category Debt - Short term Bond AMC Nippon Life Asset Management Ltd. Rating ☆☆☆☆ Risk Moderately Low Expense Ratio 1.15 Sharpe Ratio 1.92 Information Ratio -0.98 Alpha Ratio 0.76 Min Investment 5,000 Min SIP Investment 100 Exit Load NIL Yield to Maturity 4.98% Effective Maturity 2 Years 4 Months 28 Days Modified Duration 1 Year 10 Months 17 Days Growth of 10,000 investment over the years.
Date Value 31 Aug 16 ₹10,000 31 Aug 17 ₹10,800 31 Aug 18 ₹11,189 31 Aug 19 ₹12,228 31 Aug 20 ₹13,339 31 Aug 21 ₹14,192 Returns for Nippon India Short Term Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 24 Sep 21 Duration Returns 1 Month 0.4% 3 Month 1.5% 6 Month 3.5% 1 Year 6.3% 3 Year 8.5% 5 Year 7.2% 10 Year 15 Year Since launch 8% Historical performance (Yearly) on absolute basis
Year Returns 2020 9.5% 2019 9.4% 2018 5.5% 2017 5.7% 2016 9.8% 2015 8.1% 2014 11.3% 2013 7.5% 2012 9.8% 2011 7.9% Fund Manager information for Nippon India Short Term Fund
Name Since Tenure Vivek Sharma 1 Feb 20 1.5 Yr. Kinjal Desai 25 May 18 3.19 Yr. Sushil Budhia 31 Mar 21 0.33 Yr. Data below for Nippon India Short Term Fund as on 31 Aug 21
Asset Allocation
Asset Class Value Cash 11.46% Debt 88.54% Debt Sector Allocation
Sector Value Corporate 52.91% Government 35.14% Cash Equivalent 9.5% Securitized 2.45% Credit Quality
Rating Value AA 13.75% AAA 86.25% Top Securities Holdings / Portfolio
Name Holding Value Quantity National Bank For Agriculture and Rural Development
Debentures | -4% ₹349 Cr 3,300 State Bank Of India
Debentures | -3% ₹328 Cr 3,300 182 DTB 02122021
Sovereign Bonds | -3% ₹297 Cr 30,000,000 Muthoot Finance Limited
Debentures | -3% ₹280 Cr 2,748,618 India Infradebt Limited
Debentures | -2% ₹230 Cr 2,195 ICICI Prudential Life Insurance Company Limited
Debentures | -2% ₹229 Cr 2,300 India Grid Trust
Debentures | -2% ₹216 Cr 2,100 5.63% Govt Stock 2026
Sovereign Bonds | -2% ₹209 Cr 21,000,000
↓ -14,000,000 Indian Oil Corporation Limited
Debentures | -2% ₹205 Cr 2,000 Power Finance Corporation Limited
Debentures | -2% ₹196 Cr 1,900 5. ICICI Prudential Short Term Fund
CAGR/Annualized return of 8.1% since its launch. Ranked 11 in Short term Bond category. Return for 2020 was 10.6% , 2019 was 9.7% and 2018 was 5.8% . ICICI Prudential Short Term Fund
Growth Launch Date 25 Oct 01 NAV (24 Sep 21) ₹47.1717 ↓ -0.02 (-0.05 %) Net Assets (Cr) ₹20,850 on 31 Aug 21 Category Debt - Short term Bond AMC ICICI Prudential Asset Management Company Limited Rating ☆☆☆☆ Risk Moderate Expense Ratio 1.16 Sharpe Ratio 1.73 Information Ratio -0.31 Alpha Ratio 0.61 Min Investment 5,000 Min SIP Investment 1,000 Exit Load 0-7 Days (0.25%),7 Days and above(NIL) Yield to Maturity 5.25% Effective Maturity 4 Years 1 Month 17 Days Modified Duration 2 Years 4 Months 10 Days Growth of 10,000 investment over the years.
Date Value 31 Aug 16 ₹10,000 31 Aug 17 ₹10,893 31 Aug 18 ₹11,304 31 Aug 19 ₹12,372 31 Aug 20 ₹13,640 31 Aug 21 ₹14,454 Returns for ICICI Prudential Short Term Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 24 Sep 21 Duration Returns 1 Month 0.6% 3 Month 1.4% 6 Month 3% 1 Year 5.9% 3 Year 8.7% 5 Year 7.6% 10 Year 15 Year Since launch 8.1% Historical performance (Yearly) on absolute basis
Year Returns 2020 10.6% 2019 9.7% 2018 5.8% 2017 5.9% 2016 11.1% 2015 8% 2014 11.6% 2013 7.2% 2012 9.5% 2011 8.7% Fund Manager information for ICICI Prudential Short Term Fund
Name Since Tenure Manish Banthia 19 Nov 09 11.7 Yr. Nikhil Kabra 29 Dec 20 0.59 Yr. Data below for ICICI Prudential Short Term Fund as on 31 Aug 21
Asset Allocation
Asset Class Value Cash 17.94% Debt 82.06% Debt Sector Allocation
Sector Value Government 41.18% Corporate 40.09% Cash Equivalent 17.94% Securitized 0.8% Credit Quality
Rating Value AA 19.75% AAA 80.25% Top Securities Holdings / Portfolio
Name Holding Value Quantity 6.64% Govt Stock 2035
Sovereign Bonds | -8% ₹1,611 Cr 164,252,600 National Bank For Agriculture And Rural Development
Debentures | -4% ₹904 Cr 9,000 182 DTB 09122021
Sovereign Bonds | -4% ₹742 Cr 75,000,000 GOVT STOCK
Sovereign Bonds | -3% ₹687 Cr 68,000,000 91 DTB 14102021
Sovereign Bonds | -2% ₹497 Cr 50,000,000 Pipeline Infrastructure Private Limited
Debentures | -2% ₹445 Cr 4,129 Housing Development Finance Corporation Limited
Debentures | -2% ₹420 Cr 4,096 07.19 UP SDL 2031
Sovereign Bonds | -2% ₹375 Cr 37,000,000 6.79% Govt Stock 2027
Sovereign Bonds | -2% ₹338 Cr 32,625,000 6.67% Govt Stock 2050
Sovereign Bonds | -2% ₹328 Cr 35,000,000
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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