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Short Term Debt Funds or Short Duration Funds | Best Short Term Plans

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Short Term Debt Funds or Short Duration Funds

Updated on September 22, 2021 , 4326 views

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-

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)2020 (%)Debt Yield (YTM)Mod. DurationEff. Maturity
Franklin India Short Term Income Plan - Retail Plan Growth ₹4,092.62
↓ -1.07
₹1,100-0.82.913.62.9-5.30%3Y 18D
Sundaram Short Term Debt Fund Growth ₹34.6422
↓ -0.04
₹2976.17.29.24.69.24.28%1Y 5M 19D1Y 7M 20D
UTI Short Term Income Fund Growth ₹24.6516
↓ -0.01
₹3,6023.75.37.74.610.54.7%1Y 4M 2D2Y 8M 5D
Nippon India Short Term Fund Growth ₹42.0806
↓ -0.02
₹10,1891.53.56.38.59.54.98%1Y 10M 17D2Y 4M 28D
ICICI Prudential Short Term Fund Growth ₹47.1717
↓ -0.02
₹20,8501.435.98.710.65.25%2Y 4M 10D4Y 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
*Above is list of best Short Duration funds having AUM/Net Assets above 100 Crore. Sorted on Last 1 Year Return.

1. Franklin India Short Term Income Plan - Retail Plan

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 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% .

Below is the key information for Franklin India Short Term Income Plan - Retail Plan

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.

DateValue
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

Franklin India Short Term Income Plan - Retail Plan SIP Returns

   
My Monthly Investment:
Investment Tenure:
Years
Expected Annual Returns:
%
Total investment amount is ₹180,000
expected amount after 3 Years is ₹194,235.
Net Profit of ₹14,235
Invest Now

Purchase not allowed

Returns for Franklin India Short Term Income Plan - Retail Plan

Returns up to 1 year are on absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 24 Sep 21

DurationReturns
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
YearReturns
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
NameSinceTenure
Santosh Kamath24 Jun 165.19 Yr.
Kunal Agrawal24 Jun 165.19 Yr.

Data below for Franklin India Short Term Income Plan - Retail Plan as on 31 Aug 21

Asset Allocation
Asset ClassValue
Cash32.87%
Debt67.13%
Debt Sector Allocation
SectorValue
Corporate67.13%
Cash Equivalent32.87%
Credit Quality
RatingValue
A81.98%
AA17.93%
AAA0.09%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
SBI Overnight Fund Dir Gr
Investment Fund | -
29%₹598 Cr1,764,363
↑ 1,049,472
Andhra Pradesh Capital Region Development Authority
Debentures | -
12%₹237 Cr11,135
Andhra Pradesh Capital Region Development Authority
Debentures | -
11%₹226 Cr10,675
Edelweiss Agri Value Chain Limited
Debentures | -
9%₹180 Cr3,100
Edelweiss Commodities Services Limited
Debentures | -
9%₹175 Cr1,768
↓ -252
Narmada Wind Energy Private Limited
Debentures | -
7%₹137 Cr1,660
Renew Wind Energy (Rajasthan One) Private Limited
Debentures | -
5%₹108 Cr1,280
U.P. Power Corporation Limited
Debentures | -
3%₹68 Cr1,349
Edelweiss Commodities Services Limited
Debentures | -
3%₹58 Cr1,000
Hinduja Leyland Finance Limited
Debentures | -
3%₹56 Cr540
↓ -04

2. Sundaram Short Term Debt Fund

(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 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% .

Below is the key information for Sundaram Short Term Debt Fund

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.

DateValue
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

Sundaram Short Term Debt Fund SIP Returns

   
My Monthly Investment:
Investment Tenure:
Years
Expected Annual Returns:
%
Total investment amount is ₹180,000
expected amount after 3 Years is ₹194,235.
Net Profit of ₹14,235
Invest Now

Returns for Sundaram Short Term Debt Fund

Returns up to 1 year are on absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 24 Sep 21

DurationReturns
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
YearReturns
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
NameSinceTenure
Dwijendra Srivastava1 Jun 129.26 Yr.
Sandeep Agarwal1 Jun 129.26 Yr.

Data below for Sundaram Short Term Debt Fund as on 31 Aug 21

Asset Allocation
Asset ClassValue
Cash24.01%
Debt75.99%
Debt Sector Allocation
SectorValue
Credit Quality
RatingValue
AAA100%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
5.63% Govt Stock 2026
Sovereign Bonds | -
10%₹30 Cr3,000,000
↑ 1,000,000
7.16% Govt Stock 2023
Sovereign Bonds | -
7%₹21 Cr2,000,000
National Bank For Agriculture And Rural Development
Debentures | -
7%₹20 Cr200
↑ 50
5.22% GOI 2025
Sovereign Bonds | -
7%₹20 Cr2,000,000
↑ 1,000,000
Reliance Ports and Terminals Limited
Debentures | -
5%₹16 Cr150
Export-Import Bank of India
Debentures | -
5%₹16 Cr150
↑ 150
LIC Housing Finance Limited
Debentures | -
4%₹10 Cr100
Power Finance Corporation Limited
Debentures | -
3%₹10 Cr100
Housing Development Finance Corporation Limited
Debentures | -
3%₹10 Cr100
Housing Development Finance Corporation Limited
Debentures | -
3%₹10 Cr100
↑ 100

3. UTI Short Term Income Fund

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 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% .

Below is the key information for UTI Short Term Income Fund

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.

DateValue
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

UTI Short Term Income Fund SIP Returns

   
My Monthly Investment:
Investment Tenure:
Years
Expected Annual Returns:
%
Total investment amount is ₹180,000
expected amount after 3 Years is ₹197,169.
Net Profit of ₹17,169
Invest Now

Returns for UTI Short Term Income Fund

Returns up to 1 year are on absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 24 Sep 21

DurationReturns
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
YearReturns
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
NameSinceTenure
Sudhir Agarwal25 Oct 128.77 Yr.

Data below for UTI Short Term Income Fund as on 31 Aug 21

Asset Allocation
Asset ClassValue
Cash15.3%
Debt84.7%
Debt Sector Allocation
SectorValue
Government52.35%
Corporate30.19%
Cash Equivalent15.3%
Securitized2.16%
Credit Quality
RatingValue
AA14.63%
AAA85.37%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
GOVT STOCK
Sovereign Bonds | -
9%₹328 Cr3,250,000,000
6.64% Govt Stock 2035
Sovereign Bonds | -
6%₹221 Cr2,250,000,000
8.83% Govt Stock 2023
Sovereign Bonds | -
5%₹164 Cr1,500,000,000
Axis Finance Limited
Debentures | -
4%₹159 Cr1,600
Housing Development Finance Corporation Limited
Debentures | -
4%₹126 Cr1,250
National Bank For Agriculture And Rural Development
Debentures | -
4%₹126 Cr1,250
Housing and Urban Development Corporation Limited (Hudco)
Debentures | -
3%₹103 Cr1,000
Hindustan Petroleum Corporation Limited
Debentures | -
3%₹101 Cr1,000
Food Corporation Of India
Debentures | -
3%₹100 Cr1,000
↑ 1,000
8.24% Tamil Nadu SDL 2025
Sovereign Bonds | -
2%₹87 Cr800,000,000

4. Nippon India Short Term Fund

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 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% .

Below is the key information for Nippon India Short Term Fund

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.

DateValue
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

Nippon India Short Term Fund SIP Returns

   
My Monthly Investment:
Investment Tenure:
Years
Expected Annual Returns:
%
Total investment amount is ₹180,000
expected amount after 3 Years is ₹203,125.
Net Profit of ₹23,125
Invest Now

Returns for Nippon India Short Term Fund

Returns up to 1 year are on absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 24 Sep 21

DurationReturns
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
YearReturns
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
NameSinceTenure
Vivek Sharma1 Feb 201.5 Yr.
Kinjal Desai25 May 183.19 Yr.
Sushil Budhia31 Mar 210.33 Yr.

Data below for Nippon India Short Term Fund as on 31 Aug 21

Asset Allocation
Asset ClassValue
Cash11.46%
Debt88.54%
Debt Sector Allocation
SectorValue
Corporate52.91%
Government35.14%
Cash Equivalent9.5%
Securitized2.45%
Credit Quality
RatingValue
AA13.75%
AAA86.25%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
National Bank For Agriculture and Rural Development
Debentures | -
4%₹349 Cr3,300
State Bank Of India
Debentures | -
3%₹328 Cr3,300
182 DTB 02122021
Sovereign Bonds | -
3%₹297 Cr30,000,000
Muthoot Finance Limited
Debentures | -
3%₹280 Cr2,748,618
India Infradebt Limited
Debentures | -
2%₹230 Cr2,195
ICICI Prudential Life Insurance Company Limited
Debentures | -
2%₹229 Cr2,300
India Grid Trust
Debentures | -
2%₹216 Cr2,100
5.63% Govt Stock 2026
Sovereign Bonds | -
2%₹209 Cr21,000,000
↓ -14,000,000
Indian Oil Corporation Limited
Debentures | -
2%₹205 Cr2,000
Power Finance Corporation Limited
Debentures | -
2%₹196 Cr1,900

5. ICICI Prudential Short Term Fund

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 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% .

Below is the key information for ICICI Prudential Short Term Fund

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.

DateValue
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

ICICI Prudential Short Term Fund SIP Returns

   
My Monthly Investment:
Investment Tenure:
Years
Expected Annual Returns:
%
Total investment amount is ₹180,000
expected amount after 3 Years is ₹203,125.
Net Profit of ₹23,125
Invest Now

Returns for ICICI Prudential Short Term Fund

Returns up to 1 year are on absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 24 Sep 21

DurationReturns
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
YearReturns
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
NameSinceTenure
Manish Banthia19 Nov 0911.7 Yr.
Nikhil Kabra29 Dec 200.59 Yr.

Data below for ICICI Prudential Short Term Fund as on 31 Aug 21

Asset Allocation
Asset ClassValue
Cash17.94%
Debt82.06%
Debt Sector Allocation
SectorValue
Government41.18%
Corporate40.09%
Cash Equivalent17.94%
Securitized0.8%
Credit Quality
RatingValue
AA19.75%
AAA80.25%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
6.64% Govt Stock 2035
Sovereign Bonds | -
8%₹1,611 Cr164,252,600
National Bank For Agriculture And Rural Development
Debentures | -
4%₹904 Cr9,000
182 DTB 09122021
Sovereign Bonds | -
4%₹742 Cr75,000,000
GOVT STOCK
Sovereign Bonds | -
3%₹687 Cr68,000,000
91 DTB 14102021
Sovereign Bonds | -
2%₹497 Cr50,000,000
Pipeline Infrastructure Private Limited
Debentures | -
2%₹445 Cr4,129
Housing Development Finance Corporation Limited
Debentures | -
2%₹420 Cr4,096
07.19 UP SDL 2031
Sovereign Bonds | -
2%₹375 Cr37,000,000
6.79% Govt Stock 2027
Sovereign Bonds | -
2%₹338 Cr32,625,000
6.67% Govt Stock 2050
Sovereign Bonds | -
2%₹328 Cr35,000,000

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-In-Short-Term-Debt-Funds

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.

Disclaimer:
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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