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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 Aditya Birla Sun Life Short Term Opportunities Fund Growth ₹36.6615
↓ -0.01 ₹7,650 0.6 2 10.7 8.2 11.1 5.47% 1Y 9M 14D 2Y 1M 20D ICICI Prudential Short Term Fund Growth ₹45.9669
↓ 0.00 ₹23,715 0.5 2.2 9.5 8.2 10.6 5.11% 1Y 7M 10D 2Y 4M 24D HDFC Short Term Debt Fund Growth ₹24.6397
↓ -0.01 ₹17,398 0.5 2 9.5 8.6 11 5.62% 2Y 2M 17D 3Y 2D UTI Short Term Income Fund Growth ₹23.5069
↓ 0.00 ₹3,449 0.6 1.7 8.7 3.5 10.5 4.92% 1Y 3M 22D 1Y 5M 6D BNP Paribas Short Term Fund Growth ₹24.5701
↑ 0.00 ₹442 0.5 1.7 8.6 7.3 10.1 5.24% 2Y 14D 2Y 3M 26D Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 16 Apr 21 Short Duration funds having AUM/Net Assets above 100 Crore. Sorted on Last 1 Year Return.
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 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 (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 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 (Erstwhile BNP Paribas Short Term Income Fund) The primary objective of the Scheme is to provide income consistent with the prudent risk from a portfolio comprising various debt and money market instruments. However, there can be no assurance that the investment
objective of the Scheme will be achieved. The Scheme / Plan(s) do not guarantee / indicate any returns. BNP Paribas Short Term Fund is a Debt - Short term Bond fund was launched on 13 Sep 04. It is a fund with Moderately Low risk and has given a Below is the key information for BNP Paribas Short Term Fund Returns up to 1 year are on 1. Aditya Birla Sun Life Short Term Opportunities Fund
CAGR/Annualized return of 7.5% since its launch. Ranked 18 in Short term Bond category. Return for 2020 was 11.1% , 2019 was 8.5% and 2018 was 6.5% . Aditya Birla Sun Life Short Term Opportunities Fund
Growth Launch Date 9 May 03 NAV (16 Apr 21) ₹36.6615 ↓ -0.01 (-0.03 %) Net Assets (Cr) ₹7,650 on 28 Feb 21 Category Debt - Short term Bond AMC Birla Sun Life Asset Management Co Ltd Rating ☆☆☆☆ Risk Moderate Expense Ratio 1.13 Sharpe Ratio 1.63 Information Ratio -0.12 Alpha Ratio 1.02 Min Investment 1,000 Min SIP Investment 1,000 Exit Load 0-90 Days (0.5%),90 Days and above(NIL) Yield to Maturity 5.47% Effective Maturity 2 Years 1 Month 20 Days Modified Duration 1 Year 9 Months 14 Days Growth of 10,000 investment over the years.
Date Value 31 Mar 16 ₹10,000 31 Mar 17 ₹10,943 31 Mar 18 ₹11,634 31 Mar 19 ₹12,462 31 Mar 20 ₹13,380 31 Mar 21 ₹14,746 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 16 Apr 21 Duration Returns 1 Month 1.1% 3 Month 0.6% 6 Month 2% 1 Year 10.7% 3 Year 8.2% 5 Year 8% 10 Year 15 Year Since launch 7.5% Historical performance (Yearly) on absolute basis
Year Returns 2020 11.1% 2019 8.5% 2018 6.5% 2017 5.6% 2016 11.3% 2015 8.4% 2014 11.3% 2013 10.1% 2012 11.1% 2011 9.5% Fund Manager information for Aditya Birla Sun Life Short Term Opportunities Fund
Name Since Tenure Kaustubh Gupta 11 Sep 14 6.56 Yr. Mohit Sharma 6 Aug 20 0.65 Yr. Data below for Aditya Birla Sun Life Short Term Opportunities Fund as on 28 Feb 21
Asset Allocation
Asset Class Value Cash 17.08% Debt 82.92% Debt Sector Allocation
Sector Value Corporate 54.67% Government 31.79% Cash Equivalent 13.54% Credit Quality
Rating Value A 1.1% AA 20.19% AAA 78.57% Below B 0.13% Top Securities Holdings / Portfolio
Name Holding Value Quantity 8.60% Bihar SDL 2026
Sovereign Bonds | -2% ₹174 Cr 15,887,000 Reliance Industries Limited
Debentures | -2% ₹165 Cr 1,600 8.15% Govt Stock 2026
Sovereign Bonds | -2% ₹159 Cr 14,500,000 State Bank Of India
Debentures | -2% ₹152 Cr 1,500 National Bank For Agriculture And Rural Development
Debentures | -2% ₹150 Cr 1,500 Rural Electrification Corporation Limited
Debentures | -2% ₹142 Cr 1,400 Power Finance Corporation Limited
Debentures | -2% ₹124 Cr 1,200 Cholamandalam Investment And Fin. Co. Ltd
Debentures | -2% ₹124 Cr 1,250 Embassy Office Parks REIT
Debentures | -2% ₹124 Cr 1,250 6.90% Oil Mktg Cos GOI Sb 2026
Domestic Bonds | -1% ₹106 Cr 10,397,000 2. 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 (16 Apr 21) ₹45.9669 ↓ 0.00 (-0.01 %) Net Assets (Cr) ₹23,715 on 28 Feb 21 Category Debt - Short term Bond AMC ICICI Prudential Asset Management Company Limited Rating ☆☆☆☆ Risk Moderate Expense Ratio 1.15 Sharpe Ratio 1.6 Information Ratio -0.18 Alpha Ratio 0.38 Min Investment 5,000 Min SIP Investment 1,000 Exit Load 0-7 Days (0.25%),7 Days and above(NIL) Yield to Maturity 5.11% Effective Maturity 2 Years 4 Months 24 Days Modified Duration 1 Year 7 Months 10 Days Growth of 10,000 investment over the years.
Date Value 31 Mar 16 ₹10,000 31 Mar 17 ₹11,024 31 Mar 18 ₹11,693 31 Mar 19 ₹12,477 31 Mar 20 ₹13,623 31 Mar 21 ₹14,817 Returns for ICICI Prudential Short Term Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 16 Apr 21 Duration Returns 1 Month 0.9% 3 Month 0.5% 6 Month 2.2% 1 Year 9.5% 3 Year 8.2% 5 Year 8% 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 11.37 Yr. Nikhil Kabra 29 Dec 20 0.25 Yr. Data below for ICICI Prudential Short Term Fund as on 28 Feb 21
Asset Allocation
Asset Class Value Cash 24.83% Debt 75.17% Debt Sector Allocation
Sector Value Corporate 44.22% Government 35.28% Cash Equivalent 19.8% Securitized 0.69% Credit Quality
Rating Value AA 17.72% AAA 82.28% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.94% Govt Stock 2021
Sovereign Bonds | -4% ₹1,004 Cr 99,333,300 182 DTB 19082021
Sovereign Bonds | -4% ₹984 Cr 100,000,000
↑ 100,000,000 6.22% Govt Stock 2035
Sovereign Bonds | -4% ₹957 Cr 101,000,000
↑ 22,000,000 National Bank For Agriculture And Rural Development
Debentures | -4% ₹898 Cr 9,000
↑ 500 Pipeline Infrastructure Private Limited
Debentures | -2% ₹444 Cr 4,129 Housing Development Finance Corporation Limited
Debentures | -2% ₹426 Cr 4,096
↑ 250 6.79% Govt Stock 2027
Sovereign Bonds | -2% ₹422 Cr 41,000,000 GOVT STOCK
Sovereign Bonds | -2% ₹383 Cr 38,000,000 GOI Floating Rate Bond 2024
Sovereign Bonds | -2% ₹381 Cr 38,500,000 Housing Development Finance Corporation Limited
Debentures | -1% ₹328 Cr 3,250
↑ 2,750 3. HDFC Short Term Debt Fund
CAGR/Annualized return of 8.7% since its launch. Ranked 30 in Short term Bond category. Return for 2020 was 11% , 2019 was 9.7% and 2018 was 7% . HDFC Short Term Debt Fund
Growth Launch Date 25 Jun 10 NAV (16 Apr 21) ₹24.6397 ↓ -0.01 (-0.03 %) Net Assets (Cr) ₹17,398 on 28 Feb 21 Category Debt - Short term Bond AMC HDFC Asset Management Company Limited Rating ☆☆☆ Risk Moderately Low Expense Ratio 0.4 Sharpe Ratio 1.4 Information Ratio 0.28 Alpha Ratio -0.14 Min Investment 5,000 Min SIP Investment 500 Exit Load NIL Yield to Maturity 5.62% Effective Maturity 3 Years 2 Days Modified Duration 2 Years 2 Months 17 Days Growth of 10,000 investment over the years.
Date Value 31 Mar 16 ₹10,000 31 Mar 17 ₹10,889 31 Mar 18 ₹11,607 31 Mar 19 ₹12,494 31 Mar 20 ₹13,705 31 Mar 21 ₹14,871 Returns for HDFC Short Term Debt Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 16 Apr 21 Duration Returns 1 Month 1% 3 Month 0.5% 6 Month 2% 1 Year 9.5% 3 Year 8.6% 5 Year 8.2% 10 Year 15 Year Since launch 8.7% Historical performance (Yearly) on absolute basis
Year Returns 2020 11% 2019 9.7% 2018 7% 2017 6.5% 2016 9.3% 2015 8.7% 2014 10.4% 2013 8.4% 2012 10.1% 2011 9.2% Fund Manager information for HDFC Short Term Debt Fund
Name Since Tenure Anil Bamboli 25 Jun 10 10.77 Yr. Anand Laddha 21 Oct 20 0.44 Yr. Data below for HDFC Short Term Debt Fund as on 28 Feb 21
Asset Allocation
Asset Class Value Cash 17.83% Debt 82.17% Debt Sector Allocation
Sector Value Corporate 49.87% Government 32.8% Cash Equivalent 15.71% Securitized 1.62% Credit Quality
Rating Value AA 18.17% AAA 81.83% Top Securities Holdings / Portfolio
Name Holding Value Quantity 5.77% GOI 2030
Sovereign Bonds | -2% ₹370 Cr 38,500,000
↓ -41,000,000 Housing Development Finance Corporation Limited
Debentures | -2% ₹359 Cr 3,500 6.79% Govt Stock 2027
Sovereign Bonds | -2% ₹314 Cr 30,500,000 Housing Development Finance Corporation Limited
Debentures | -2% ₹311 Cr 3,000 Indinfravit Trust
Debentures | -2% ₹293 Cr 2,900 State Bank of India
Debentures | -2% ₹290 Cr 2,750 State Bank Of India
Debentures | -2% ₹278 Cr 2,800 State Bank of India
Debentures | -1% ₹260 Cr 2,500 Rural Electrification Corporation Limited
Debentures | -1% ₹257 Cr 2,500 Motherson Sumi Systems Limited
Debentures | -1% ₹250 Cr 2,500 4. UTI Short Term Income Fund
CAGR/Annualized return of 6.5% 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 (16 Apr 21) ₹23.5069 ↓ 0.00 (0.00 %) Net Assets (Cr) ₹3,449 on 28 Feb 21 Category Debt - Short term Bond AMC UTI Asset Management Company Ltd Rating ☆☆☆☆ Risk Moderate Expense Ratio 0.82 Sharpe Ratio 1.46 Information Ratio -0.72 Alpha Ratio 0.06 Min Investment 10,000 Min SIP Investment 500 Exit Load NIL Yield to Maturity 4.92% Effective Maturity 1 Year 5 Months 6 Days Modified Duration 1 Year 3 Months 22 Days Growth of 10,000 investment over the years.
Date Value 31 Mar 16 ₹10,000 31 Mar 17 ₹10,975 31 Mar 18 ₹11,627 31 Mar 19 ₹12,391 31 Mar 20 ₹11,908 31 Mar 21 ₹12,911 Returns for UTI Short Term Income Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 16 Apr 21 Duration Returns 1 Month 0.8% 3 Month 0.6% 6 Month 1.7% 1 Year 8.7% 3 Year 3.5% 5 Year 5.2% 10 Year 15 Year Since launch 6.5% 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 8.44 Yr. Data below for UTI Short Term Income Fund as on 28 Feb 21
Asset Allocation
Asset Class Value Cash 39.65% Debt 60.35% Debt Sector Allocation
Sector Value Corporate 34.15% Cash Equivalent 33.31% Government 30.41% Securitized 2.14% Credit Quality
Rating Value AA 11.53% AAA 88.47% Top Securities Holdings / Portfolio
Name Holding Value Quantity 91 DTB 29042021
Sovereign Bonds | -6% ₹199 Cr 2,000,000,000 91 DTB 22042021
Sovereign Bonds | -5% ₹159 Cr 1,600,000,000 Food Corporation of India
Debentures | -5% ₹158 Cr 1,500 Bajaj Finance Limited
Debentures | -3% ₹109 Cr 1,100
↑ 1,100 Housing and Urban Development Corporation Limited (Hudco)
Debentures | -3% ₹103 Cr 1,000 Housing Development Finance Corporation Limited
Debentures | -3% ₹100 Cr 1,000 Hindustan Petroleum Corporation Limited
Debentures | -3% ₹99 Cr 1,000 364 DTB 17022022
Sovereign Bonds | -3% ₹97 Cr 1,000,000,000
↑ 1,000,000,000 India Grid Trust
Unlisted bonds | -2% ₹74 Cr 750 Cholamandalam Investment And Fin. Co. Ltd (Cholamandalam Dbs Finance Ltd)
Debentures | -2% ₹69 Cr 700 5. BNP Paribas Short Term Fund
CAGR/Annualized return of 5.6% since its launch. Ranked 41 in Short term Bond category. Return for 2020 was 10.1% , 2019 was 6.9% and 2018 was 6.6% . BNP Paribas Short Term Fund
Growth Launch Date 13 Sep 04 NAV (16 Apr 21) ₹24.5701 ↑ 0.00 (0.00 %) Net Assets (Cr) ₹442 on 28 Feb 21 Category Debt - Short term Bond AMC BNP Paribas Asset Mgmt India Pvt. Ltd Rating ☆☆☆ Risk Moderately Low Expense Ratio 1.22 Sharpe Ratio 1.07 Information Ratio -0.76 Alpha Ratio -1.01 Min Investment 5,000 Min SIP Investment 300 Exit Load NIL Yield to Maturity 5.24% Effective Maturity 2 Years 3 Months 26 Days Modified Duration 2 Years 14 Days Growth of 10,000 investment over the years.
Date Value 31 Mar 16 ₹10,000 31 Mar 17 ₹10,852 31 Mar 18 ₹11,550 31 Mar 19 ₹12,379 31 Mar 20 ₹13,186 31 Mar 21 ₹14,260 Returns for BNP Paribas Short Term Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 16 Apr 21 Duration Returns 1 Month 0.9% 3 Month 0.5% 6 Month 1.7% 1 Year 8.6% 3 Year 7.3% 5 Year 7.3% 10 Year 15 Year Since launch 5.6% Historical performance (Yearly) on absolute basis
Year Returns 2020 10.1% 2019 6.9% 2018 6.6% 2017 5.9% 2016 9.3% 2015 8.1% 2014 10% 2013 7.9% 2012 9.8% 2011 8.8% Fund Manager information for BNP Paribas Short Term Fund
Name Since Tenure Mayank Prakash 21 Sep 15 5.53 Yr. Vikram Pamnani 27 Dec 17 3.26 Yr. Data below for BNP Paribas Short Term Fund as on 28 Feb 21
Asset Allocation
Asset Class Value Cash 14.19% Debt 85.81% Debt Sector Allocation
Sector Value Corporate 47.02% Government 38.8% Cash Equivalent 14.19% Credit Quality
Rating Value AA 15.51% AAA 84.49% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.32% Govt Stock 2024
Sovereign Bonds | -12% ₹53 Cr 5,000,000
↑ 5,000,000 Oil& Natural Gas Corporation Limited
Debentures | -9% ₹39 Cr 400 Indian Railway Finance Corporation Limited
Debentures | -7% ₹32 Cr 300 Reliance Industries Limited
Debentures | -7% ₹31 Cr 300
↑ 300 6.18% Govt Stock 2024
Sovereign Bonds | -7% ₹31 Cr 3,000,000
↓ -1,000,000 Reliance Utilities and Power Private Limited
Debentures | -6% ₹27 Cr 250 Muthoot Finance Limited
Debentures | -6% ₹25 Cr 250,000 Cholamandalam Investment And Fin. Co. Ltd (Cholamandalam Dbs Finance Ltd)
Debentures | -6% ₹25 Cr 250 Housing Development Finance Corporation Limited
Debentures | -5% ₹20 Cr 200
↓ -100 6.30% Govt Stock 2023
Sovereign Bonds | -3% ₹15 Cr 1,500,000
↑ 1,000,000
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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