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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 February 1, 2023 , 6680 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 2023

Some of the best short term debt funds include-

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)2022 (%)Debt Yield (YTM)Mod. DurationEff. Maturity
Sundaram Short Term Debt Fund Growth ₹36.3802
↑ 0.01
₹3620.811.412.85.3 4.52%1Y 2M 13D1Y 7M 3D
Franklin India Short Term Income Plan - Retail Plan Growth ₹4,874.76
↑ 0.32
₹4842.62.99.97.48.60%
ICICI Prudential Short Term Fund Growth ₹49.9643
↑ 0.01
₹15,5281.73.35.66.24.77.85%1Y 4M 20D4Y 8M 19D
Aditya Birla Sun Life Short Term Opportunities Fund Growth ₹39.7055
↑ 0.01
₹5,0071.72.74.86.34.27.81%1Y 7M 13D2Y
BNP Paribas Short Term Fund Growth ₹25.4771
↓ -0.01
₹2580.61.34.66.5 5.16%1Y 11M 26D2Y 3M
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 31 Dec 21
*Above is list of best Short Duration funds having AUM/Net Assets above 100 Crore. Sorted on Last 1 Year Return.

1. 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 6.9% since its launch.  Ranked 56 in Short term Bond category. .

Below is the key information for Sundaram Short Term Debt Fund

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.

DateValue
31 Jan 18₹10,000
31 Jan 19₹10,639
31 Jan 20₹10,119
31 Jan 21₹10,952

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 ₹197,169.
Net Profit of ₹17,169
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 31 Dec 21

DurationReturns
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
YearReturns
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
Fund Manager information for Sundaram Short Term Debt Fund
NameSinceTenure

Data below for Sundaram Short Term Debt Fund as on 30 Nov 21

Asset Allocation
Asset ClassValue
Debt Sector Allocation
SectorValue
Credit Quality
RatingValue
Top Securities Holdings / Portfolio
NameHoldingValueQuantity

2. 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 7.8% since its launch.  Ranked 19 in Short term Bond category.  Return for 2022 was 8.6% , 2021 was 15% and 2020 was -5.3% .

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 (03 Feb 23) ₹4,874.76 ↑ 0.32   (0.01 %)
Net Assets (Cr) ₹484 on 31 Dec 22
Category Debt - Short term Bond
AMC Franklin Templeton Asst Mgmt(IND)Pvt Ltd
Rating
Risk Moderate
Expense Ratio 0.04
Sharpe Ratio 0.55
Information Ratio -0.04
Alpha Ratio 5.03
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
Modified Duration

Growth of 10,000 investment over the years.

DateValue
31 Jan 18₹10,000
31 Jan 19₹10,900
31 Jan 20₹10,894
31 Jan 21₹10,766
31 Jan 22₹12,312
31 Jan 23₹13,470

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 ₹200,132.
Net Profit of ₹20,132
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 31 Dec 21

DurationReturns
1 Month 1.1%
3 Month 2.6%
6 Month 2.9%
1 Year 9.9%
3 Year 7.4%
5 Year 6.2%
10 Year
15 Year
Since launch 7.8%
Historical performance (Yearly) on absolute basis
YearReturns
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
NameSinceTenure
Santosh Kamath31 Jan 0220.93 Yr.
Kunal Agrawal31 Jan 0220.93 Yr.

Data below for Franklin India Short Term Income Plan - Retail Plan as on 31 Dec 22

Asset Allocation
Asset ClassValue
Cash7.65%
Debt92.35%
Debt Sector Allocation
SectorValue
Corporate92.35%
Cash Equivalent7.65%
Credit Quality
RatingValue
A100%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
Andhra Pradesh Capital Region Development Authority
Debentures | -
44%₹216 Cr10,670
↓ -05
Andhra Pradesh Capital Region Development Authority
Debentures | -
42%₹202 Cr10,025
↓ -575
Andhra Pradesh Capital Region Development Authority
Debentures | -
6%₹31 Cr1,523
↓ -49
SBI Overnight Fund Dir Gr
Investment Fund | -
5%₹25 Cr70,010
↑ 34,939
Rivaaz TRade Ventures Private Limited
Debentures | -
0%₹0 Cr1,000
↑ 1,000
Future Ideas Company Limited
Debentures | -
0%₹0 Cr300
↑ 300
Call, Cash & Other Assets
CBLO | -
2%₹12 Cr

3. 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 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% .

Below is the key information for ICICI Prudential Short Term Fund

ICICI Prudential Short Term Fund
Growth
Launch Date 25 Oct 01
NAV (03 Feb 23) ₹49.9643 ↑ 0.01   (0.02 %)
Net Assets (Cr) ₹15,528 on 31 Dec 22
Category Debt - Short term Bond
AMC ICICI Prudential Asset Management Company Limited
Rating
Risk Moderate
Expense Ratio 1.14
Sharpe Ratio -0.28
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 7.85%
Effective Maturity 4 Years 8 Months 19 Days
Modified Duration 1 Year 4 Months 20 Days

Growth of 10,000 investment over the years.

DateValue
31 Jan 18₹10,000
31 Jan 19₹10,616
31 Jan 20₹11,651
31 Jan 21₹12,805
31 Jan 22₹13,298
31 Jan 23₹13,968

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 ₹200,132.
Net Profit of ₹20,132
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 31 Dec 21

DurationReturns
1 Month 0.5%
3 Month 1.7%
6 Month 3.3%
1 Year 5.6%
3 Year 6.2%
5 Year 7%
10 Year
15 Year
Since launch 7.9%
Historical performance (Yearly) on absolute basis
YearReturns
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
NameSinceTenure
Manish Banthia19 Nov 0913.13 Yr.
Nikhil Kabra29 Dec 202.01 Yr.

Data below for ICICI Prudential Short Term Fund as on 31 Dec 22

Asset Allocation
Asset ClassValue
Cash20.45%
Debt79.55%
Debt Sector Allocation
SectorValue
Corporate49.3%
Government40.62%
Cash Equivalent9.22%
Securitized0.86%
Credit Quality
RatingValue
AA16.66%
AAA83.34%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
7.42% Govt Stock 2033
Sovereign Bonds | -
11%₹1,690 Cr169,624,650
7.38% Govt Stock 2027
Sovereign Bonds | -
8%₹1,325 Cr131,199,900
7.69% Govt Stock 2034
Sovereign Bonds | -
6%₹938 Cr95,824,740
7.01% Govt Stock 2028
Sovereign Bonds | -
5%₹717 Cr72,756,299
Pipeline Infrastructure Limited
Debentures | -
3%₹420 Cr4,129
Small Industries Development Bank Of India
Debentures | -
2%₹301 Cr3,000
6.69% Govt Stock 2024
Sovereign Bonds | -
2%₹249 Cr25,000,000
Godrej Industries Limited
Debentures | -
1%₹221 Cr2,250
Jamnagar Utilities & Power Private Limited
Debentures | -
1%₹201 Cr2,000
Power Finance Corporation Ltd.
Debentures | -
1%₹200 Cr2,000

4. Aditya Birla Sun Life Short Term Opportunities Fund

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 CAGR/Annualized return of 7.2% 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% .

Below is the key information for Aditya Birla Sun Life Short Term Opportunities Fund

Aditya Birla Sun Life Short Term Opportunities Fund
Growth
Launch Date 9 May 03
NAV (03 Feb 23) ₹39.7055 ↑ 0.01   (0.03 %)
Net Assets (Cr) ₹5,007 on 31 Dec 22
Category Debt - Short term Bond
AMC Birla Sun Life Asset Management Co Ltd
Rating
Risk Moderate
Expense Ratio 1.11
Sharpe Ratio -0.69
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 7.81%
Effective Maturity 2 Years
Modified Duration 1 Year 7 Months 13 Days

Growth of 10,000 investment over the years.

DateValue
31 Jan 18₹10,000
31 Jan 19₹10,668
31 Jan 20₹11,573
31 Jan 21₹12,799
31 Jan 22₹13,335
31 Jan 23₹13,919

Aditya Birla Sun Life Short Term Opportunities Fund SIP Returns

   
My Monthly Investment:
Investment Tenure:
Years
Expected Annual Returns:
%
Total investment amount is ₹180,000
expected amount after 3 Years is ₹200,132.
Net Profit of ₹20,132
Invest Now

Returns for Aditya Birla Sun Life Short Term Opportunities Fund

Returns up to 1 year are on absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 31 Dec 21

DurationReturns
1 Month 0.5%
3 Month 1.7%
6 Month 2.7%
1 Year 4.8%
3 Year 6.3%
5 Year 6.9%
10 Year
15 Year
Since launch 7.2%
Historical performance (Yearly) on absolute basis
YearReturns
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
NameSinceTenure
Kaustubh Gupta11 Sep 148.31 Yr.
Mohit Sharma6 Aug 202.41 Yr.

Data below for Aditya Birla Sun Life Short Term Opportunities Fund as on 31 Dec 22

Asset Allocation
Asset ClassValue
Cash24.08%
Debt75.92%
Debt Sector Allocation
SectorValue
Corporate56.69%
Government30.1%
Cash Equivalent10.13%
Securitized3.08%
Credit Quality
RatingValue
AA23.23%
AAA76.77%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
7.26% Govt Stock 2032
Sovereign Bonds | -
6%₹319 Cr32,011,700
↑ 11,500,000
Housing Development Finance Corporation Ltd
Debentures | -
3%₹149 Cr1,500
Shriram Finance Limited
Debentures | -
3%₹141 Cr1,400
State Bank Of India
Debentures | -
3%₹140 Cr1,450
Bajaj Housing Finance Limited
Debentures | -
3%₹137 Cr1,400
State Bank Of India
Debentures | -
2%₹121 Cr1,204
06.90 OIL SPL 2026
Domestic Bonds | -
2%₹103 Cr10,397,000
Bharti Telecom Limited
Debentures | -
2%₹100 Cr1,000
7.42% Govt Stock 2033
Sovereign Bonds | -
2%₹100 Cr10,000,000
Sundew Properties Limited
Debentures | -
2%₹99 Cr1,020

5. BNP Paribas Short Term Fund

(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 CAGR/Annualized return of 5.5% since its launch.  Ranked 41 in Short term Bond category. .

Below is the key information for BNP Paribas Short Term Fund

BNP Paribas Short Term Fund
Growth
Launch Date 13 Sep 04
NAV (11 Mar 22) ₹25.4771 ↓ -0.01   (-0.02 %)
Net Assets (Cr) ₹258 on 15 Feb 22
Category Debt - Short term Bond
AMC BNP Paribas Asset Mgmt India Pvt. Ltd
Rating
Risk Moderately Low
Expense Ratio 0.98
Sharpe Ratio 0.07
Information Ratio -0.85
Alpha Ratio -1.04
Min Investment 5,000
Min SIP Investment 300
Exit Load NIL
Yield to Maturity 5.16%
Effective Maturity 2 Years 3 Months
Modified Duration 1 Year 11 Months 26 Days

Growth of 10,000 investment over the years.

DateValue
31 Jan 18₹10,000
31 Jan 19₹10,676
31 Jan 20₹11,457
31 Jan 21₹12,498
31 Jan 22₹12,954

BNP Paribas 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 ₹200,132.
Net Profit of ₹20,132
Invest Now

Returns for BNP Paribas 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 31 Dec 21

DurationReturns
1 Month 0.2%
3 Month 0.6%
6 Month 1.3%
1 Year 4.6%
3 Year 6.5%
5 Year 6.6%
10 Year
15 Year
Since launch 5.5%
Historical performance (Yearly) on absolute basis
YearReturns
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
Fund Manager information for BNP Paribas Short Term Fund
NameSinceTenure

Data below for BNP Paribas Short Term Fund as on 15 Feb 22

Asset Allocation
Asset ClassValue
Debt Sector Allocation
SectorValue
Credit Quality
RatingValue
Top Securities Holdings / Portfolio
NameHoldingValueQuantity

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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