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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 July 8, 2020 , 2296 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 2020

Some of the best short term debt funds include-

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)2019 (%)Debt Yield (YTM)Mod. DurationEff. Maturity
UTI Short Term Income Fund Growth ₹22.7916
↑ 0.04
₹1,5205.97.212.13.8-3.90%3Y 13D
HDFC Short Term Debt Fund Growth ₹23.7537
↑ 0.06
₹11,00067.112.18.99.77.81%2Y 7M 6D3Y 4M 10D
ICICI Prudential Short Term Fund Growth ₹44.2661
↑ 0.09
₹13,1405.96.911.68.29.70%
Axis Short Term Fund Growth ₹23.1676
↑ 0.02
₹5,5605.46.711.58.59.87.04%2Y 3M 18D2Y 10M 24D
IDFC Bond Fund Short Term Plan Growth ₹43.4683
↑ 0.04
₹11,4595.36.611.48.59.76.73%1Y 11M 12D2Y 3M 11D
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 10 Jul 20
*Above is list of best Short Duration funds having AUM/Net Assets above 100 Crore. Sorted on Last 1 Year Return.

1. 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 2019 was -3.9% , 2018 was 6% and 2017 was 6.1% .

Below is the key information for UTI Short Term Income Fund

UTI Short Term Income Fund
Growth
Launch Date 19 Sep 07
NAV (10 Jul 20) ₹22.7916 ↑ 0.04   (0.16 %)
Net Assets (Cr) ₹1,520 on 30 Apr 20
Category Debt - Short term Bond
AMC UTI Asset Management Company Ltd
Rating
Risk Moderate
Expense Ratio 0.9
Sharpe Ratio -0.46
Information Ratio -0.74
Alpha Ratio -34.35
Min Investment 10,000
Min SIP Investment 500
Exit Load NIL
Yield to Maturity 0%
Effective Maturity 3 Years 13 Days
Modified Duration

Growth of 10,000 investment over the years.

DateValue
30 Jun 15₹10,000
30 Jun 16₹10,886
30 Jun 17₹11,940
30 Jun 18₹12,495
30 Jun 19₹11,841
30 Jun 20₹13,270

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 10 Jul 20

DurationReturns
1 Month 2.3%
3 Month 5.9%
6 Month 7.2%
1 Year 12.1%
3 Year 3.8%
5 Year 5.9%
10 Year
15 Year
Since launch 6.6%
Historical performance (Yearly) on absolute basis
YearReturns
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
NameSinceTenure
Sudhir Agarwal25 Oct 127.69 Yr.

Data below for UTI Short Term Income Fund as on 30 Apr 20

Asset Allocation
Asset ClassValue
Cash14.94%
Debt85.06%
Debt Sector Allocation
SectorValue
Government67.21%
Corporate17.85%
Cash Equivalent14.94%
Credit Quality
RatingValue
A10.3%
AAA89.7%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
7.68% Govt Stock 2023
Sovereign Bonds | -
15%₹217 Cr2,000,000,000
↑ 2,000,000,000
Net Current Assets
Net Current Assets | -
15%₹214 Cr00
Punjab National Bank
Debentures | -
9%₹128 Cr1,320
8.83% Govt Stock 2023
Sovereign Bonds | -
8%₹112 Cr1,000,000,000
↑ 1,000,000,000
HOUSING AND URBAN DEVELOPMENT CORPORATION LIMITED (HUDCO)
Debentures | -
7%₹103 Cr1,000
Larsen And Toubro Limited
Debentures | -
7%₹103 Cr1,000
Power Finance Corporation Ltd.
Debentures | -
6%₹80 Cr800
↑ 800
Reliance Utilities And Power Private Limited
Debentures | -
4%₹57 Cr550
↑ 550
7.16% Govt Stock 2023
Sovereign Bonds | -
4%₹53 Cr500,000,000
↑ 500,000,000
08.27% RJ SDL Spl 2022
Domestic Bonds | -
4%₹53 Cr500,000,000

2. HDFC Short Term Debt Fund

(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 CAGR/Annualized return of 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% .

Below is the key information for HDFC Short Term Debt Fund

HDFC Short Term Debt Fund
Growth
Launch Date 25 Jun 10
NAV (10 Jul 20) ₹23.7537 ↑ 0.06   (0.27 %)
Net Assets (Cr) ₹11,000 on 30 Apr 20
Category Debt - Short term Bond
AMC HDFC Asset Management Company Limited
Rating
Risk Moderately Low
Expense Ratio 0.4
Sharpe Ratio 4.06
Information Ratio -0.17
Alpha Ratio -0.77
Min Investment 5,000
Min SIP Investment 500
Exit Load NIL
Yield to Maturity 7.81%
Effective Maturity 3 Years 4 Months 10 Days
Modified Duration 2 Years 7 Months 6 Days

Growth of 10,000 investment over the years.

DateValue
30 Jun 15₹10,000
30 Jun 16₹10,866
30 Jun 17₹11,797
30 Jun 18₹12,451
30 Jun 19₹13,540
30 Jun 20₹15,107

HDFC 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 ₹206,148.
Net Profit of ₹26,148
Invest Now

Returns for HDFC 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 10 Jul 20

DurationReturns
1 Month 2.7%
3 Month 6%
6 Month 7.1%
1 Year 12.1%
3 Year 8.9%
5 Year 8.8%
10 Year
15 Year
Since launch 9%
Historical performance (Yearly) on absolute basis
YearReturns
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
NameSinceTenure
Anil Bamboli25 Jun 1010.02 Yr.
Chirag Dagli31 Jul 190.92 Yr.

Data below for HDFC Short Term Debt Fund as on 30 Apr 20

Asset Allocation
Asset ClassValue
Cash6.7%
Debt93.3%
Debt Sector Allocation
SectorValue
Corporate62.75%
Government27.5%
Cash Equivalent5.66%
Securitized4.09%
Credit Quality
RatingValue
A0.61%
AA15.25%
AAA84.09%
Below B0.05%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
Housing Development Finance Corporation Limited
Debentures | -
3%₹308 Cr3,000
State Bank Of India
Debentures | -
3%₹294 Cr2,750
Indinfravit Trust
Debentures | -
3%₹293 Cr2,900
Net Current Assets
Net Current Assets | -
3%₹266 Cr
State Bank Of India
Debentures | -
2%₹253 Cr2,500
Housing Development Finance Corporation Limited
Debentures | -
2%₹252 Cr2,500
↑ 2,500
Rural Electrification Corporation Limited
Debentures | -
2%₹250 Cr2,500
Mobil Trust Series 10 (PTC of pools from Shriram City Union Finance Ltd.)
Unlisted bonds | -
2%₹241 Cr5,000,000
Power Finance Corporation Ltd.
Debentures | -
2%₹203 Cr2,000
7.59% Govt Stock 2026
Sovereign Bonds | -
2%₹201 Cr18,500,000

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 8.3% 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% .

Below is the key information for ICICI Prudential Short Term Fund

ICICI Prudential Short Term Fund
Growth
Launch Date 25 Oct 01
NAV (10 Jul 20) ₹44.2661 ↑ 0.09   (0.21 %)
Net Assets (Cr) ₹13,140 on 30 Apr 20
Category Debt - Short term Bond
AMC ICICI Prudential Asset Management Company Limited
Rating
Risk Moderate
Expense Ratio 1.24
Sharpe Ratio 4.06
Information Ratio -1.07
Alpha Ratio -0.99
Min Investment 5,000
Min SIP Investment 1,000
Exit Load 0-7 Days (0.25%),7 Days and above(NIL)
Yield to Maturity 0%
Effective Maturity
Modified Duration

Growth of 10,000 investment over the years.

DateValue
30 Jun 15₹10,000
30 Jun 16₹10,938
30 Jun 17₹12,045
30 Jun 18₹12,535
30 Jun 19₹13,604
30 Jun 20₹15,134

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 ₹206,148.
Net Profit of ₹26,148
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 10 Jul 20

DurationReturns
1 Month 2.4%
3 Month 5.9%
6 Month 6.9%
1 Year 11.6%
3 Year 8.2%
5 Year 8.8%
10 Year
15 Year
Since launch 8.3%
Historical performance (Yearly) on absolute basis
YearReturns
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
NameSinceTenure
Manish Banthia19 Nov 0910.62 Yr.

Data below for ICICI Prudential Short Term Fund as on 30 Apr 20

Asset Allocation
Asset ClassValue
Cash9.13%
Debt90.87%
Debt Sector Allocation
SectorValue
Corporate53.88%
Government35.83%
Cash Equivalent9.13%
Securitized1.15%
Credit Quality
RatingValue
AA17.46%
AAA82.54%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
GOVT STOCK
Sovereign Bonds | -
8%₹1,108 Cr99,603,900
↑ 2,000,000
GOVT STOCK
Sovereign Bonds | -
6%₹804 Cr78,000,000
↑ 78,000,000
GOVT STOCK
Sovereign Bonds | -
6%₹759 Cr70,375,500
↑ 27,500,000
LIC HOUSING FINANCE LIMITED
Debentures | -
4%₹517 Cr5,024
PIPELINE INFRASTRUCTURE PRIVATE LIMITED
Debentures | -
3%₹418 Cr4,129
Net Current Assets
Net Current Assets | -
2%₹335 Cr
Treps
CBLO/Reverse Repo | -
2%₹330 Cr
7.59% Govt Stock 2026
Sovereign Bonds | -
2%₹283 Cr26,000,000
↑ 11,000,000
National Bank For Agriculture And Rural Development
Certificate of Deposit | -
2%₹243 Cr25,000
Reliance Utilities And Power Private Limited
Debentures | -
2%₹240 Cr2,250

4. Axis Short Term Fund

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 CAGR/Annualized return of 8.4% 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% .

Below is the key information for Axis Short Term Fund

Axis Short Term Fund
Growth
Launch Date 22 Jan 10
NAV (10 Jul 20) ₹23.1676 ↑ 0.02   (0.10 %)
Net Assets (Cr) ₹5,560 on 30 Apr 20
Category Debt - Short term Bond
AMC Axis Asset Management Company Limited
Rating
Risk Moderately Low
Expense Ratio 0.95
Sharpe Ratio 4.39
Information Ratio 0
Alpha Ratio 0
Min Investment 5,000
Min SIP Investment 1,000
Exit Load NIL
Yield to Maturity 7.04%
Effective Maturity 2 Years 10 Months 24 Days
Modified Duration 2 Years 3 Months 18 Days

Growth of 10,000 investment over the years.

DateValue
30 Jun 15₹10,000
30 Jun 16₹10,868
30 Jun 17₹11,814
30 Jun 18₹12,368
30 Jun 19₹13,436
30 Jun 20₹14,992

Axis 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 ₹206,148.
Net Profit of ₹26,148
Invest Now

Returns for Axis 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 10 Jul 20

DurationReturns
1 Month 2.2%
3 Month 5.4%
6 Month 6.7%
1 Year 11.5%
3 Year 8.5%
5 Year 8.5%
10 Year
15 Year
Since launch 8.4%
Historical performance (Yearly) on absolute basis
YearReturns
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
NameSinceTenure
Devang Shah5 Nov 127.66 Yr.

Data below for Axis Short Term Fund as on 30 Apr 20

Asset Allocation
Asset ClassValue
Cash14.54%
Debt85.46%
Debt Sector Allocation
SectorValue
Corporate55.71%
Government30.49%
Cash Equivalent11.56%
Securitized2.23%
Credit Quality
RatingValue
AA1.11%
AAA98.89%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
Net Receivables / (Payables)
Net Current Assets | -
4%₹227 Cr
GOVT STOCK
Sovereign Bonds | -
3%₹210 Cr19,500,000
↑ 19,380,400
Clearing Corporation Of India Ltd
CBLO | -
3%₹209 Cr
84 DTB 20082020
Sovereign Bonds | -
3%₹199 Cr20,000,000
↑ 20,000,000
GOVT STOCK
Sovereign Bonds | -
3%₹194 Cr18,000,000
↑ 18,000,000
INDIA GRID TRUST
Debentures | -
3%₹189 Cr1,840
National Bank For Agriculture And Rural Development
Debentures | -
3%₹158 Cr1,500
↑ 150
National Highways Authority Of India
Debentures | -
3%₹157 Cr1,500
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA
Debentures | -
2%₹145 Cr1,400
Hdb Financial Services Limited
Debentures | -
2%₹136 Cr1,350
↑ 1,350

5. IDFC Bond Fund Short Term Plan

(Erstwhile IDFC Super Saver Income Fund - Short Term Plan)

The primary investment objective of the scheme is to seek to generate stable returns with a low-risk strategy by creating a portfolio that is invested in good quality fixed income & Money Market securities. However, there can be no assurance that the investment objectives of the scheme will be realized.

IDFC Bond Fund Short Term Plan is a Debt - Short term Bond fund was launched on 14 Dec 00. It is a fund with Moderately Low risk and has given a CAGR/Annualized return of 7.8% since its launch.  Ranked 47 in Short term Bond category.  Return for 2019 was 9.7% , 2018 was 6.5% and 2017 was 5.9% .

Below is the key information for IDFC Bond Fund Short Term Plan

IDFC Bond Fund Short Term Plan
Growth
Launch Date 14 Dec 00
NAV (10 Jul 20) ₹43.4683 ↑ 0.04   (0.10 %)
Net Assets (Cr) ₹11,459 on 30 Apr 20
Category Debt - Short term Bond
AMC IDFC Asset Management Company Limited
Rating
Risk Moderately Low
Expense Ratio 0.79
Sharpe Ratio 4.06
Information Ratio 0
Alpha Ratio 0
Min Investment 5,000
Min SIP Investment 1,000
Exit Load NIL
Yield to Maturity 6.73%
Effective Maturity 2 Years 3 Months 11 Days
Modified Duration 1 Year 11 Months 12 Days

Growth of 10,000 investment over the years.

DateValue
30 Jun 15₹10,000
30 Jun 16₹10,847
30 Jun 17₹11,717
30 Jun 18₹12,245
30 Jun 19₹13,358
30 Jun 20₹14,895

IDFC Bond Fund Short Term Plan SIP Returns

   
My Monthly Investment:
Investment Tenure:
Years
Expected Annual Returns:
%
Total investment amount is ₹180,000
expected amount after 3 Years is ₹206,148.
Net Profit of ₹26,148
Invest Now

Returns for IDFC Bond Fund Short Term Plan

Returns up to 1 year are on absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 10 Jul 20

DurationReturns
1 Month 2.1%
3 Month 5.3%
6 Month 6.6%
1 Year 11.4%
3 Year 8.5%
5 Year 8.3%
10 Year
15 Year
Since launch 7.8%
Historical performance (Yearly) on absolute basis
YearReturns
2019 9.7%
2018 6.5%
2017 5.9%
2016 8.8%
2015 8.1%
2014 10.1%
2013 7.6%
2012 9.3%
2011 9.2%
2010 3.7%
Fund Manager information for IDFC Bond Fund Short Term Plan
NameSinceTenure
Suyash Choudhary11 Mar 119.31 Yr.

Data below for IDFC Bond Fund Short Term Plan as on 30 Apr 20

Asset Allocation
Asset ClassValue
Cash6.41%
Debt93.59%
Debt Sector Allocation
SectorValue
Corporate55.61%
Government39.11%
Cash Equivalent4.64%
Securitized0.64%
Credit Quality
RatingValue
AAA100%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
Reliance Industries Limited
Debentures | -
7%₹851 Cr84,000,000
↑ 84,000,000
INDIAN RAILWAY FINANCE CORPORATION LIMITED
Debentures | -
4%₹491 Cr45,000,000
NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT
Debentures | -
3%₹424 Cr39,400,000
Reliance Industries Limited
Debentures | -
3%₹424 Cr41,000,000
Housing Development Finance Corporation Limited
Debentures | -
3%₹405 Cr39,500,000
NTPC Limited
Debentures | -
3%₹390 Cr37,000,000
Power Finance Corporation Limited
Debentures | -
3%₹381 Cr37,500,000
LIC Housing Finance Limited
Debentures | -
3%₹328 Cr32,500,000
National Highways Authority Of India
Debentures | -
3%₹317 Cr30,500,000
Small Industries Development Bank Of India
Debentures | -
2%₹312 Cr29,450,000
↑ 13,100,000

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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