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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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Some of the prominent features of short term funds are:
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.
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.
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.
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.
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.
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.
Some of the best short term debt funds include-
Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 2023 (%) Debt Yield (YTM) Mod. Duration Eff. Maturity Sundaram Short Term Debt Fund Growth ₹36.3802
↑ 0.01 ₹362 0.8 11.4 12.8 5.3 4.52% 1Y 2M 13D 1Y 7M 3D HDFC Short Term Debt Fund Growth ₹28.7918
↑ 0.01 ₹14,373 2.1 3.7 7.8 5.7 7.1 7.85% 2Y 8M 19D 3Y 11M 16D ICICI Prudential Short Term Fund Growth ₹54.2383
↑ 0.00 ₹18,691 1.9 3.6 7.8 6 7.4 7.93% 1Y 11M 19D 3Y 11M 8D UTI Short Term Income Fund Growth ₹28.6881
↑ 0.01 ₹2,379 2.1 3.8 7.7 7.2 6.9 7.83% 2Y 6M 7D 5Y Nippon India Short Term Fund Growth ₹47.4945
↑ 0.01 ₹5,968 2 3.6 7.6 5.5 6.8 7.85% 2Y 8M 8D 3Y 5M 19D Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 31 Dec 21 Short Duration
funds having AUM/Net Assets above 100 Crore
. Sorted on Last 1 Year Return
.
(Erstwhile Sundaram Select Debt Short Term Asset Fund) To earn regular income by investing primarily in fixed income
securities, which may be paid as dividend or reinvested at
the option of the investor. A secondary objective is to
attempt to keep the value of its units reasonably stable. Sundaram Short Term Debt Fund is a Debt - Short term Bond fund was launched on 5 Sep 02. It is a fund with Moderately Low risk and has given a Below is the key information for Sundaram Short Term Debt Fund Returns up to 1 year are on (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 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 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 1. Sundaram Short Term Debt Fund
CAGR/Annualized
return of 6.9% since its launch. Ranked 56 in Short term Bond
category. . Sundaram Short Term Debt Fund
Growth Launch Date 5 Sep 02 NAV (31 Dec 21) ₹36.3802 ↑ 0.01 (0.03 %) Net Assets (Cr) ₹362 on 30 Nov 21 Category Debt - Short term Bond AMC Sundaram Asset Management Company Ltd Rating ☆☆ Risk Moderately Low Expense Ratio 0.96 Sharpe Ratio 0.98 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 250 Exit Load NIL Yield to Maturity 4.52% Effective Maturity 1 Year 7 Months 3 Days Modified Duration 1 Year 2 Months 13 Days Growth of 10,000 investment over the years.
Date Value 28 Feb 19 ₹10,000 29 Feb 20 ₹9,575 28 Feb 21 ₹10,247 Returns for Sundaram Short Term Debt Fund
absolute basis
& more than 1 year are on CAGR (Compound Annual Growth Rate)
basis. as on 31 Dec 21 Duration Returns 1 Month 0.2% 3 Month 0.8% 6 Month 11.4% 1 Year 12.8% 3 Year 5.3% 5 Year 5.6% 10 Year 15 Year Since launch 6.9% Historical performance (Yearly) on absolute basis
Year Returns 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 Fund Manager information for Sundaram Short Term Debt Fund
Name Since Tenure Data below for Sundaram Short Term Debt Fund as on 30 Nov 21
Asset Allocation
Asset Class Value Debt Sector Allocation
Sector Value Credit Quality
Rating Value Top Securities Holdings / Portfolio
Name Holding Value Quantity 2. HDFC Short Term Debt Fund
CAGR/Annualized
return of 8% since its launch. Ranked 30 in Short term Bond
category. Return for 2023 was 7.1% , 2022 was 3.5% and 2021 was 3.9% . HDFC Short Term Debt Fund
Growth Launch Date 25 Jun 10 NAV (15 Mar 24) ₹28.7918 ↑ 0.01 (0.02 %) Net Assets (Cr) ₹14,373 on 31 Jan 24 Category Debt - Short term Bond AMC HDFC Asset Management Company Limited Rating ☆☆☆ Risk Moderately Low Expense Ratio 0.74 Sharpe Ratio 0.51 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 300 Exit Load NIL Yield to Maturity 7.85% Effective Maturity 3 Years 11 Months 16 Days Modified Duration 2 Years 8 Months 19 Days Growth of 10,000 investment over the years.
Date Value 28 Feb 19 ₹10,000 29 Feb 20 ₹11,065 28 Feb 21 ₹11,966 28 Feb 22 ₹12,561 28 Feb 23 ₹13,043 29 Feb 24 ₹14,066 Returns for HDFC Short Term Debt Fund
absolute basis
& more than 1 year are on CAGR (Compound Annual Growth Rate)
basis. as on 31 Dec 21 Duration Returns 1 Month 0.7% 3 Month 2.1% 6 Month 3.7% 1 Year 7.8% 3 Year 5.7% 5 Year 7% 10 Year 15 Year Since launch 8% Historical performance (Yearly) on absolute basis
Year Returns 2023 7.1% 2022 3.5% 2021 3.9% 2020 11% 2019 9.7% 2018 7% 2017 6.5% 2016 9.3% 2015 8.7% 2014 10.4% Fund Manager information for HDFC Short Term Debt Fund
Name Since Tenure Anil Bamboli 25 Jun 10 13.69 Yr. Dhruv Muchhal 22 Jun 23 0.69 Yr. Data below for HDFC Short Term Debt Fund as on 31 Jan 24
Asset Allocation
Asset Class Value Cash 9.39% Debt 90.37% Other 0.25% Debt Sector Allocation
Sector Value Government 49.92% Corporate 42.26% Cash Equivalent 7.2% Securitized 0.38% Credit Quality
Rating Value AA 14.93% AAA 85.07% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.18% Govt Stock 2033
Sovereign Bonds | -7% ₹951 Cr 94,500,000 7.69% Govt Stock 2028
Sovereign Bonds | -4% ₹513 Cr 51,500,000 7.26% Govt Stock 2033
Sovereign Bonds | -3% ₹449 Cr 44,500,000 7.1% Govt Stock 2029
Sovereign Bonds | -3% ₹370 Cr 37,000,000 6.79% Govt Stock 2027
Sovereign Bonds | -2% ₹362 Cr 36,500,000 7.26% Govt Stock 2032
Sovereign Bonds | -2% ₹348 Cr 34,500,000 7.38% Govt Stock 2027
Sovereign Bonds | -2% ₹318 Cr 31,500,000 Bharti Telecom Limited
Debentures | -2% ₹274 Cr 2,750 State Bank Of India
Debentures | -2% ₹249 Cr 2,500 National Bank for Agriculture and Rural Development
Domestic Bonds | -2% ₹226 Cr 22,500
↑ 22,500 3. ICICI Prudential Short Term Fund
CAGR/Annualized
return of 7.8% since its launch. Ranked 11 in Short term Bond
category. Return for 2023 was 7.4% , 2022 was 4.7% and 2021 was 3.9% . ICICI Prudential Short Term Fund
Growth Launch Date 25 Oct 01 NAV (15 Mar 24) ₹54.2383 ↑ 0.00 (0.00 %) Net Assets (Cr) ₹18,691 on 31 Jan 24 Category Debt - Short term Bond AMC ICICI Prudential Asset Management Company Limited Rating ☆☆☆☆ Risk Moderate Expense Ratio 1.11 Sharpe Ratio 1.1 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 7.93% Effective Maturity 3 Years 11 Months 8 Days Modified Duration 1 Year 11 Months 19 Days Growth of 10,000 investment over the years.
Date Value 28 Feb 19 ₹10,000 29 Feb 20 ₹11,052 28 Feb 21 ₹11,973 28 Feb 22 ₹12,503 28 Feb 23 ₹13,157 29 Feb 24 ₹14,186 Returns for ICICI Prudential Short Term Fund
absolute basis
& more than 1 year are on CAGR (Compound Annual Growth Rate)
basis. as on 31 Dec 21 Duration Returns 1 Month 0.7% 3 Month 1.9% 6 Month 3.6% 1 Year 7.8% 3 Year 6% 5 Year 7.2% 10 Year 15 Year Since launch 7.8% Historical performance (Yearly) on absolute basis
Year Returns 2023 7.4% 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% Fund Manager information for ICICI Prudential Short Term Fund
Name Since Tenure Manish Banthia 19 Nov 09 14.29 Yr. Nikhil Kabra 29 Dec 20 3.17 Yr. Data below for ICICI Prudential Short Term Fund as on 31 Jan 24
Asset Allocation
Asset Class Value Cash 32.81% Debt 66.95% Other 0.25% Debt Sector Allocation
Sector Value Corporate 43.39% Government 34.61% Cash Equivalent 21.61% Securitized 0.15% Credit Quality
Rating Value AA 18.9% AAA 81.1% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.18% Govt Stock 2033
Sovereign Bonds | -10% ₹3,338 Cr 331,697,910
↑ 50,000,000 8.25% Govt Stock 2033
Sovereign Bonds | -5% ₹1,729 Cr 170,908,750 7.06% Govt Stock 2028
Sovereign Bonds | -4% ₹1,391 Cr 139,253,450 8.1% Govt Stock 2034
Sovereign Bonds | -2% ₹804 Cr 81,074,740 Pipeline Infrastructure Limited
Debentures | -1% ₹438 Cr 4,379
↑ 1,000 7.38% Govt Stock 2027
Sovereign Bonds | -1% ₹376 Cr 37,227,200 India (Republic of)
- | -1% ₹374 Cr 40,000,000
↑ 40,000,000 Small Industries Development Bank Of India
Debentures | -1% ₹367 Cr 37,000 Embassy Office Parks Reit
Debentures | -1% ₹307 Cr 3,100
↑ 1,300 Muthoot Finance Limited
Debentures | -1% ₹301 Cr 30,000 4. UTI Short Term Income Fund
CAGR/Annualized
return of 6.6% since its launch. Ranked 10 in Short term Bond
category. Return for 2023 was 6.9% , 2022 was 3.8% and 2021 was 8.4% . UTI Short Term Income Fund
Growth Launch Date 19 Sep 07 NAV (15 Mar 24) ₹28.6881 ↑ 0.01 (0.04 %) Net Assets (Cr) ₹2,379 on 31 Jan 24 Category Debt - Short term Bond AMC UTI Asset Management Company Ltd Rating ☆☆☆☆ Risk Moderate Expense Ratio 0.95 Sharpe Ratio 0.15 Information Ratio 0 Alpha Ratio 0 Min Investment 10,000 Min SIP Investment 500 Exit Load NIL Yield to Maturity 7.83% Effective Maturity 5 Years Modified Duration 2 Years 6 Months 7 Days Growth of 10,000 investment over the years.
Date Value 28 Feb 19 ₹10,000 29 Feb 20 ₹9,723 28 Feb 21 ₹10,492 28 Feb 22 ₹11,472 28 Feb 23 ₹11,936 29 Feb 24 ₹12,864 Returns for UTI Short Term Income Fund
absolute basis
& more than 1 year are on CAGR (Compound Annual Growth Rate)
basis. as on 31 Dec 21 Duration Returns 1 Month 0.7% 3 Month 2.1% 6 Month 3.8% 1 Year 7.7% 3 Year 7.2% 5 Year 5.1% 10 Year 15 Year Since launch 6.6% Historical performance (Yearly) on absolute basis
Year Returns 2023 6.9% 2022 3.8% 2021 8.4% 2020 10.5% 2019 -3.9% 2018 6% 2017 6.1% 2016 10.1% 2015 8.3% 2014 10.9% Fund Manager information for UTI Short Term Income Fund
Name Since Tenure Sudhir Agarwal 25 Oct 12 11.36 Yr. Data below for UTI Short Term Income Fund as on 31 Jan 24
Asset Allocation
Asset Class Value Cash 23.24% Debt 76.52% Other 0.24% Debt Sector Allocation
Sector Value Corporate 41.6% Government 35.93% Cash Equivalent 22.22% Credit Quality
Rating Value AA 12.01% AAA 87.99% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.37% Govt Stock 2028
Sovereign Bonds | -23% ₹556 Cr 5,500,000,000
↑ 5,500,000,000 National Bank For Agriculture And Rural Development
Debentures | -9% ₹225 Cr 22,500 Power Finance Corporation Ltd.
Debentures | -8% ₹201 Cr 20,000 Small Industries Development Bank of India
Debentures | -8% ₹200 Cr 20,000 Rural Electrification Corporation Limited
Debentures | -7% ₹181 Cr 18,000 India Grid TRust
Debentures | -3% ₹75 Cr 750 Shriram Finance Limited
Debentures | -3% ₹70 Cr 7,000 7.06% Govt Stock 2028
Sovereign Bonds | -2% ₹50 Cr 500,000,000
↓ -3,000,000,000 HDFC Bank Limited
Debentures | -2% ₹50 Cr 5,000 HDFC Bank Limited
Debentures | -2% ₹50 Cr 500 5. Nippon India Short Term Fund
CAGR/Annualized
return of 7.6% since its launch. Ranked 17 in Short term Bond
category. Return for 2023 was 6.8% , 2022 was 3.2% and 2021 was 4.4% . Nippon India Short Term Fund
Growth Launch Date 18 Dec 02 NAV (15 Mar 24) ₹47.4945 ↑ 0.01 (0.03 %) Net Assets (Cr) ₹5,968 on 31 Jan 24 Category Debt - Short term Bond AMC Nippon Life Asset Management Ltd. Rating ☆☆☆☆ Risk Moderately Low Expense Ratio 1.16 Sharpe Ratio 0.05 Information Ratio -0.87 Alpha Ratio -0.42 Min Investment 5,000 Min SIP Investment 100 Exit Load NIL Yield to Maturity 7.85% Effective Maturity 3 Years 5 Months 19 Days Modified Duration 2 Years 8 Months 8 Days Growth of 10,000 investment over the years.
Date Value 28 Feb 19 ₹10,000 29 Feb 20 ₹11,007 28 Feb 21 ₹11,805 28 Feb 22 ₹12,456 28 Feb 23 ₹12,838 29 Feb 24 ₹13,812 Returns for Nippon India Short Term Fund
absolute basis
& more than 1 year are on CAGR (Compound Annual Growth Rate)
basis. as on 31 Dec 21 Duration Returns 1 Month 0.7% 3 Month 2% 6 Month 3.6% 1 Year 7.6% 3 Year 5.5% 5 Year 6.6% 10 Year 15 Year Since launch 7.6% Historical performance (Yearly) on absolute basis
Year Returns 2023 6.8% 2022 3.2% 2021 4.4% 2020 9.5% 2019 9.4% 2018 5.5% 2017 5.7% 2016 9.8% 2015 8.1% 2014 11.3% Fund Manager information for Nippon India Short Term Fund
Name Since Tenure Vivek Sharma 1 Feb 20 4.08 Yr. Kinjal Desai 25 May 18 5.77 Yr. Sushil Budhia 31 Mar 21 2.92 Yr. Data below for Nippon India Short Term Fund as on 31 Jan 24
Asset Allocation
Asset Class Value Cash 13.5% Debt 86.25% Other 0.26% Debt Sector Allocation
Sector Value Corporate 54.35% Government 34.26% Cash Equivalent 10.52% Securitized 0.61% Credit Quality
Rating Value AA 14.38% AAA 85.62% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.17% Govt Stock 2030
Sovereign Bonds | -10% ₹623 Cr 62,000,000 7.06% Govt Stock 2028
Sovereign Bonds | -5% ₹325 Cr 32,500,000 7.1% Govt Stock 2029
Sovereign Bonds | -4% ₹225 Cr 22,500,000 LIC Housing Finance Limited
Debentures | -3% ₹175 Cr 1,750 07.86 MH Sdl 2030
Sovereign Bonds | -3% ₹169 Cr 16,500,000 India Grid TRust
Debentures | -3% ₹159 Cr 1,600 National Bank For Agriculture And Rural Development
Debentures | -3% ₹150 Cr 15,000 Rural Electrification Corporation Limited
Debentures | -3% ₹150 Cr 15,000 Small Industries Development Bank Of India
Debentures | -2% ₹146 Cr 14,500 Bharti Telecom Limited
Debentures | -2% ₹126 Cr 12,500
Tax implication on debt funds is computed in the following manner-
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.
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 |
Alike all the financial securities, Short term debt funds have certain flaws as well. Some of the risks accompanying these funds include-
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.
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.
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.