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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 2020
Some of the best short term debt funds include-
Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 2019 (%) Debt Yield (YTM) Mod. Duration Eff. Maturity HDFC Short Term Debt Fund Growth ₹23.9034
↓ 0.00 ₹13,154 2.1 5.9 10.8 8.6 9.7 6.26% 2Y 9M 3Y 9M UTI Short Term Income Fund Growth ₹22.8947
↓ 0.00 ₹1,947 1.4 6.1 10.5 3.5 -3.9 5.57% 2Y 10M 6D 3Y 5M 16D ICICI Prudential Short Term Fund Growth ₹44.5421
↓ 0.00 ₹17,228 1.9 5.8 10.5 7.9 9.7 5.86% 2Y 10M 6D 4Y 18D Axis Short Term Fund Growth ₹23.3167 ₹9,375 1.6 5.5 10.2 8.2 9.8 5.08% 2Y 1M 6D 2Y 8M 12D Aditya Birla Sun Life Short Term Opportunities Fund Growth ₹35.5704
↑ 0.00 ₹4,769 3.3 7.4 10 8 8.5 5.82% 2Y 6M 4D 3Y 1M 24D Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 28 Sep 20 Short Duration funds having AUM/Net Assets above 100 Crore. Sorted on Last 1 Year Return.
(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 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 stable returns with a low risk strategy while maintaining liquidity through a portfolio comprising of debt and money market instruments. However, there can be no assurance that the investment objective of the scheme will be achieved. Axis Short Term Fund is a Debt - Short term Bond fund was launched on 22 Jan 10. It is a fund with Moderately Low risk and has given a Below is the key information for Axis Short Term Fund Returns up to 1 year are on 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 1. HDFC Short Term Debt Fund
CAGR/Annualized return of 8.9% since its launch. Ranked 30 in Short term Bond category. Return for 2019 was 9.7% , 2018 was 7% and 2017 was 6.5% . HDFC Short Term Debt Fund
Growth Launch Date 25 Jun 10 NAV (28 Sep 20) ₹23.9034 ↓ 0.00 (-0.02 %) Net Assets (Cr) ₹13,154 on 31 Aug 20 Category Debt - Short term Bond AMC HDFC Asset Management Company Limited Rating ☆☆☆ Risk Moderately Low Expense Ratio 0.4 Sharpe Ratio 2.17 Information Ratio 0.47 Alpha Ratio -1.14 Min Investment 5,000 Min SIP Investment 500 Exit Load NIL Yield to Maturity 6.26% Effective Maturity 3 Years 9 Months Modified Duration 2 Years 9 Months Growth of 10,000 investment over the years.
Date Value 31 Aug 15 ₹10,000 31 Aug 16 ₹10,913 31 Aug 17 ₹11,795 31 Aug 18 ₹12,444 31 Aug 19 ₹13,639 31 Aug 20 ₹15,098 Returns for HDFC Short Term Debt Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 28 Sep 20 Duration Returns 1 Month 0.8% 3 Month 2.1% 6 Month 5.9% 1 Year 10.8% 3 Year 8.6% 5 Year 8.6% 10 Year 15 Year Since launch 8.9% Historical performance (Yearly) on absolute basis
Year Returns 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% 2010 Fund Manager information for HDFC Short Term Debt Fund
Name Since Tenure Anil Bamboli 25 Jun 10 10.19 Yr. Chirag Dagli 31 Jul 19 1.09 Yr. Data below for HDFC Short Term Debt Fund as on 31 Aug 20
Asset Allocation
Asset Class Value Cash 7.09% Debt 92.91% Debt Sector Allocation
Sector Value Corporate 51.61% Government 39.18% Cash Equivalent 6.26% Securitized 2.95% Credit Quality
Rating Value A 0.84% AA 14.15% AAA 84.96% Below B 0.04% Top Securities Holdings / Portfolio
Name Holding Value Quantity 5.77% GOI 2030
Sovereign Bonds | -3% ₹370 Cr 38,000,000
↑ 35,000,000 Housing Development Finance Corporation Limited
Debentures | -3% ₹361 Cr 3,500
↑ 1,000 7.32% Govt Stock 2024
Sovereign Bonds | -3% ₹354 Cr 33,000,000
↑ 24,500,000 5.79% Govt Stock 2030
Sovereign Bonds | -3% ₹343 Cr 35,000,000 Housing Development Finance Corporation Limited
Debentures | -2% ₹314 Cr 3,000 State Bank of India
Debentures | -2% ₹296 Cr 2,750
↑ 2,750 Indinfravit Trust
Debentures | -2% ₹293 Cr 2,900 State Bank of India
Debentures | -2% ₹262 Cr 2,500
↑ 2,500 Rural Electrification Corporation Limited
Debentures | -2% ₹258 Cr 2,500 State Bank of India
Debentures | -2% ₹214 Cr 2,100
↑ 2,100 2. UTI Short Term Income Fund
CAGR/Annualized return of 6.6% since its launch. Ranked 10 in Short term Bond category. Return for 2019 was -3.9% , 2018 was 6% and 2017 was 6.1% . UTI Short Term Income Fund
Growth Launch Date 19 Sep 07 NAV (28 Sep 20) ₹22.8947 ↓ 0.00 (-0.02 %) Net Assets (Cr) ₹1,947 on 31 Aug 20 Category Debt - Short term Bond AMC UTI Asset Management Company Ltd Rating ☆☆☆☆ Risk Moderate Expense Ratio 0.9 Sharpe Ratio 2.18 Information Ratio -0.72 Alpha Ratio -1.11 Min Investment 10,000 Min SIP Investment 500 Exit Load NIL Yield to Maturity 5.57% Effective Maturity 3 Years 5 Months 16 Days Modified Duration 2 Years 10 Months 6 Days Growth of 10,000 investment over the years.
Date Value 31 Aug 15 ₹10,000 31 Aug 16 ₹10,956 31 Aug 17 ₹11,900 31 Aug 18 ₹12,450 31 Aug 19 ₹11,919 31 Aug 20 ₹13,158 Returns for UTI Short Term Income Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 28 Sep 20 Duration Returns 1 Month 0.7% 3 Month 1.4% 6 Month 6.1% 1 Year 10.5% 3 Year 3.5% 5 Year 5.6% 10 Year 15 Year Since launch 6.6% Historical performance (Yearly) on absolute basis
Year Returns 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% 2010 5.9% Fund Manager information for UTI Short Term Income Fund
Name Since Tenure Sudhir Agarwal 25 Oct 12 7.86 Yr. Data below for UTI Short Term Income Fund as on 31 Aug 20
Asset Allocation
Asset Class Value Cash 9.77% Debt 90.23% Debt Sector Allocation
Sector Value Government 65.77% Corporate 28.29% Cash Equivalent 5.94% Credit Quality
Rating Value AA 9.72% AAA 90.28% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.68% Govt Stock 2023
Sovereign Bonds | -10% ₹189 Cr 1,750,000,000
↑ 1,000,000,000 5.22% GOI 2025
Sovereign Bonds | -8% ₹148 Cr 1,500,000,000
↑ 1,500,000,000 Housing and Urban Development Corporation Limited (Hudco)
Debentures | -5% ₹105 Cr 1,000
↑ 1,000 Grasim Industries Limited
Debentures | -5% ₹101 Cr 1,000 5.77% GOI 2030
Sovereign Bonds | -5% ₹93 Cr 950,000,000
↓ -50,000,000 7.32% Govt Stock 2024
Sovereign Bonds | -4% ₹80 Cr 750,000,000
↑ 250,000,000 6.18% Govt Stock 2024
Sovereign Bonds | -3% ₹67 Cr 650,000,000
↓ -350,000,000 8.83% Govt Stock 2023
Sovereign Bonds | -3% ₹56 Cr 500,000,000 Reliance Ports and Terminals Limited
Debentures | -3% ₹53 Cr 500
↑ 500 7.16% Govt Stock 2023
Sovereign Bonds | -3% ₹53 Cr 500,000,000 3. ICICI Prudential Short Term Fund
CAGR/Annualized return of 8.2% since its launch. Ranked 11 in Short term Bond category. Return for 2019 was 9.7% , 2018 was 5.8% and 2017 was 5.9% . ICICI Prudential Short Term Fund
Growth Launch Date 25 Oct 01 NAV (28 Sep 20) ₹44.5421 ↓ 0.00 (0.00 %) Net Assets (Cr) ₹17,228 on 31 Aug 20 Category Debt - Short term Bond AMC ICICI Prudential Asset Management Company Limited Rating ☆☆☆☆ Risk Moderate Expense Ratio 1.24 Sharpe Ratio 2.12 Information Ratio -0.82 Alpha Ratio -1.28 Min Investment 5,000 Min SIP Investment 1,000 Exit Load 0-7 Days (0.25%),7 Days and above(NIL) Yield to Maturity 5.86% Effective Maturity 4 Years 18 Days Modified Duration 2 Years 10 Months 6 Days Growth of 10,000 investment over the years.
Date Value 31 Aug 15 ₹10,000 31 Aug 16 ₹11,022 31 Aug 17 ₹12,006 31 Aug 18 ₹12,459 31 Aug 19 ₹13,636 31 Aug 20 ₹15,033 Returns for ICICI Prudential Short Term Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 28 Sep 20 Duration Returns 1 Month 0.7% 3 Month 1.9% 6 Month 5.8% 1 Year 10.5% 3 Year 7.9% 5 Year 8.5% 10 Year 15 Year Since launch 8.2% Historical performance (Yearly) on absolute basis
Year Returns 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% 2010 4.4% Fund Manager information for ICICI Prudential Short Term Fund
Name Since Tenure Manish Banthia 19 Nov 09 10.79 Yr. Data below for ICICI Prudential Short Term Fund as on 31 Aug 20
Asset Allocation
Asset Class Value Cash 9.5% Debt 90.5% Debt Sector Allocation
Sector Value Corporate 45.99% Government 43.71% Cash Equivalent 9.35% Securitized 0.95% Credit Quality
Rating Value AA 17.32% AAA 82.68% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.32% Govt Stock 2024
Sovereign Bonds | -5% ₹884 Cr 82,500,000
↓ -6,500,000 7.57% Govt Stock 2033
Sovereign Bonds | -5% ₹835 Cr 76,603,900
↓ -5,000,000 6.19% Govt Stock 2034
Sovereign Bonds | -4% ₹718 Cr 73,600,000
↑ 14,500,000 5.77% GOI 2030
Sovereign Bonds | -4% ₹609 Cr 62,500,000
↑ 62,500,000 6.79% Govt Stock 2027
Sovereign Bonds | -3% ₹482 Cr 46,500,000 LIC Housing Finance Limited
Debentures | -3% ₹469 Cr 4,474
↑ 4,474 Pipeline Infrastructure Private Limited
Debentures | -3% ₹442 Cr 4,129
↑ 4,129 7.59% Govt Stock 2026
Sovereign Bonds | -2% ₹373 Cr 34,500,000 7.00% Govt Stock 2021
Sovereign Bonds | -1% ₹253 Cr 25,000,000 Reliance Utilities and Power Private Limited
Debentures | -1% ₹250 Cr 2,250
↑ 2,250 4. Axis Short Term Fund
CAGR/Annualized return of 8.2% since its launch. Ranked 26 in Short term Bond category. Return for 2019 was 9.8% , 2018 was 6.3% and 2017 was 5.9% . Axis Short Term Fund
Growth Launch Date 22 Jan 10 NAV (28 Sep 20) ₹23.3167 Net Assets (Cr) ₹9,375 on 31 Aug 20 Category Debt - Short term Bond AMC Axis Asset Management Company Limited Rating ☆☆☆ Risk Moderately Low Expense Ratio 0.92 Sharpe Ratio 2.31 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 1,000 Exit Load NIL Yield to Maturity 5.08% Effective Maturity 2 Years 8 Months 12 Days Modified Duration 2 Years 1 Month 6 Days Growth of 10,000 investment over the years.
Date Value 31 Aug 15 ₹10,000 31 Aug 16 ₹10,907 31 Aug 17 ₹11,791 31 Aug 18 ₹12,328 31 Aug 19 ₹13,544 31 Aug 20 ₹14,907 Returns for Axis Short Term Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 28 Sep 20 Duration Returns 1 Month 0.6% 3 Month 1.6% 6 Month 5.5% 1 Year 10.2% 3 Year 8.2% 5 Year 8.3% 10 Year 15 Year Since launch 8.2% Historical performance (Yearly) on absolute basis
Year Returns 2019 9.8% 2018 6.3% 2017 5.9% 2016 9.6% 2015 8.1% 2014 10% 2013 7.3% 2012 10.1% 2011 9.2% 2010 Fund Manager information for Axis Short Term Fund
Name Since Tenure Devang Shah 5 Nov 12 7.83 Yr. Data below for Axis Short Term Fund as on 31 Aug 20
Asset Allocation
Asset Class Value Cash 13.13% Debt 86.87% Debt Sector Allocation
Sector Value Corporate 48.36% Government 39.18% Cash Equivalent 10.45% Securitized 2.01% Credit Quality
Rating Value AAA 100% Top Securities Holdings / Portfolio
Name Holding Value Quantity Food Corporation of India
Debentures | -6% ₹599 Cr 5,550
↑ 5,550 7.42% MH SDL 2022
Sovereign Bonds | -5% ₹504 Cr 48,247,500
↑ 48,247,500 5.77% GOI 2030
Sovereign Bonds | -4% ₹356 Cr 36,500,000
↑ 36,500,000 Reliance Industries Limited
Debentures | -4% ₹342 Cr 3,250
↑ 2,000 Housing Development Finance Corporation Limited
Debentures | -2% ₹214 Cr 2,080
↓ -650 6.19% Govt Stock 2034
Sovereign Bonds | -2% ₹193 Cr 19,780,300
↓ -500,000 Mahindra & Mahindra Financial Services Limited
Debentures | -2% ₹188 Cr 1,850
↑ 1,850 Tata Capital Financial Services Limited
Debentures | -2% ₹186 Cr 1,500
↑ 1,500 India Grid Trust
Debentures | -2% ₹179 Cr 1,740
↑ 1,740 8.83% Govt Stock 2023
Sovereign Bonds | -2% ₹173 Cr 15,525,000 5. Aditya Birla Sun Life Short Term Opportunities Fund
CAGR/Annualized return of 7.6% since its launch. Ranked 18 in Short term Bond category. Return for 2019 was 8.5% , 2018 was 6.5% and 2017 was 5.6% . Aditya Birla Sun Life Short Term Opportunities Fund
Growth Launch Date 9 May 03 NAV (28 Sep 20) ₹35.5704 ↑ 0.00 (0.00 %) Net Assets (Cr) ₹4,769 on 31 Aug 20 Category Debt - Short term Bond AMC Birla Sun Life Asset Management Co Ltd Rating ☆☆☆☆ Risk Moderate Expense Ratio 1.16 Sharpe Ratio 1.31 Information Ratio -0.59 Alpha Ratio -3.34 Min Investment 1,000 Min SIP Investment 1,000 Exit Load 0-90 Days (0.5%),90 Days and above(NIL) Yield to Maturity 5.82% Effective Maturity 3 Years 1 Month 24 Days Modified Duration 2 Years 6 Months 4 Days Growth of 10,000 investment over the years.
Date Value 31 Aug 15 ₹10,000 31 Aug 16 ₹11,064 31 Aug 17 ₹11,937 31 Aug 18 ₹12,434 31 Aug 19 ₹13,638 31 Aug 20 ₹14,880 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 28 Sep 20 Duration Returns 1 Month 1.5% 3 Month 3.3% 6 Month 7.4% 1 Year 10% 3 Year 8% 5 Year 8.5% 10 Year 15 Year Since launch 7.6% Historical performance (Yearly) on absolute basis
Year Returns 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% 2010 6% Fund Manager information for Aditya Birla Sun Life Short Term Opportunities Fund
Name Since Tenure Kaustubh Gupta 11 Sep 14 5.98 Yr. Mohit Sharma 6 Aug 20 0.07 Yr. Data below for Aditya Birla Sun Life Short Term Opportunities Fund as on 31 Aug 20
Asset Allocation
Asset Class Value Cash 10.33% Debt 89.67% Debt Sector Allocation
Sector Value Corporate 53.13% Government 38.08% Cash Equivalent 8.8% Credit Quality
Rating Value A 2.21% AA 7.95% AAA 89.84% Top Securities Holdings / Portfolio
Name Holding Value Quantity Rural Electrification Corporation Limited
Debentures | -3% ₹143 Cr 1,400 5.79% Govt Stock 2030
Sovereign Bonds | -3% ₹137 Cr 14,000,000
↑ 4,000,000 5.77% GOI 2030
Sovereign Bonds | -3% ₹136 Cr 14,000,000
↑ 14,000,000 7.32% Govt Stock 2024
Sovereign Bonds | -3% ₹134 Cr 12,500,000
↑ 2,500,000 7.27% Govt Stock 2026
Sovereign Bonds | -2% ₹107 Cr 10,000,000 HDB Financial Services Limited
Debentures | -2% ₹106 Cr 850 6.79% Govt Stock 2027
Sovereign Bonds | -2% ₹104 Cr 10,000,000
↑ 4,000,000 Power Finance Corporation Limited
Debentures | -2% ₹100 Cr 1,000
↑ 1,000 National Bank For Agriculture and Rural Development
Debentures | -2% ₹98 Cr 950
↑ 950 Reliance Industries Limited
Debentures | -2% ₹94 Cr 900
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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