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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 2019
Some of the best short term debt funds include-
To generate steady returns with low to medium market risk for investors by investing in a portfolio of short -medium term debt and money market securities. DHFL Pramerica Short Maturity Fund is a Debt - Short term Bond fund was launched on 21 Jan 03. It is a fund with Moderate risk and has given a Below is the key information for DHFL Pramerica Short Maturity 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 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. Reliance 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 Reliance 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 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 Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 2018 (%) Debt Yield (YTM) Mod. Duration Eff. Maturity DHFL Pramerica Short Maturity Fund Growth ₹32.6674
↓ -0.02 ₹84 27.9 10.8 -0.4 3.8 5.5 7.57% 2Y 5M 19D 3Y 1M 6D ICICI Prudential Short Term Fund Growth ₹41.0352
↓ -0.02 ₹10,909 1.6 4.5 9.6 6.9 5.8 7.28% 1Y 10M 24D 2Y 6M 29D Reliance Short Term Fund Growth ₹36.9073
↓ -0.02 ₹5,910 1.7 4.7 9.5 6.7 5.5 7.4% 2Y 14D 2Y 5M 12D Aditya Birla Sun Life Short Term Opportunities Fund Growth ₹32.7693
↑ 0.01 ₹3,220 1.5 4.2 8.9 6.7 6.5 7.75% 1Y 10M 24D 2Y 5M 1D UTI Short Term Income Fund Growth ₹21.1045
↓ -0.01 ₹2,202 1.8 5 -3.9 2.5 6 7.23% 2Y 1M 2D 2Y 5M 1D Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 13 Dec 19 1. DHFL Pramerica Short Maturity Fund
CAGR/Annualized return of 7.3% since its launch. Ranked 5 in Short term Bond category. Return for 2018 was 5.5% , 2017 was 6.8% and 2016 was 10% . DHFL Pramerica Short Maturity Fund
Growth Launch Date 21 Jan 03 NAV (13 Dec 19) ₹32.6674 ↓ -0.02 (-0.06 %) Net Assets (Cr) ₹84 on 31 Oct 19 Category Debt - Short term Bond AMC DHFL Pramerica Asset Managers Private Limited Rating ☆☆☆☆☆ Risk Moderate Expense Ratio 1.02 Sharpe Ratio -0.11 Information Ratio -0.48 Alpha Ratio -32.47 Min Investment 5,000 Min SIP Investment 500 Exit Load 0-6 Months (0.5%),6 Months and above(NIL) Yield to Maturity 7.57% Effective Maturity 3 Years 1 Month 6 Days Modified Duration 2 Years 5 Months 19 Days Growth of 10,000 investment over the years.
Date Value 30 Nov 14 ₹10,000 30 Nov 15 ₹10,853 30 Nov 16 ₹12,010 30 Nov 17 ₹12,821 30 Nov 18 ₹13,419 30 Nov 19 ₹13,467 Returns for DHFL Pramerica Short Maturity Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 13 Dec 19 Duration Returns 1 Month -0.7% 3 Month 27.9% 6 Month 10.8% 1 Year -0.4% 3 Year 3.8% 5 Year 5.9% 10 Year 15 Year Since launch 7.3% Historical performance (Yearly) on absolute basis
Year Returns 2018 5.5% 2017 6.8% 2016 10% 2015 8.3% 2014 10.6% 2013 8.1% 2012 9.8% 2011 8.9% 2010 4.9% 2009 7.7% Fund Manager information for DHFL Pramerica Short Maturity Fund
Name Since Tenure Kumaresh Ramakrishnan 13 Dec 17 1.8 Yr. Puneet Pal 13 Dec 17 1.8 Yr. Data below for DHFL Pramerica Short Maturity Fund as on 31 Oct 19
Asset Allocation
Asset Class Value Cash 12.69% Debt 87.31% Debt Sector Allocation
Sector Value Corporate 48.86% Government 38.45% Cash Equivalent 12.69% Credit Quality
Rating Value AA 5.69% AAA 84.78% BBB 9.53% Top Securities Holdings / Portfolio
Name Holding Value Quantity HINDUSTAN PETROLEUM CORPORATION LIMITED
Debentures | -10% ₹9 Cr 850,000
↑ 850,000 REC LIMITED
Debentures | -10% ₹8 Cr 800,000
↑ 800,000 Yes Bank Limited
Debentures | -9% ₹7 Cr 830,000 SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA
Debentures | -8% ₹7 Cr 700,000
↑ 700,000 Reliance Jio Infocomm Limited
Debentures | -7% ₹6 Cr 610,000
↑ 610,000 NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT
Debentures | -7% ₹6 Cr 600,000
↑ 600,000 GOVT STOCK
Sovereign Bonds | -6% ₹5 Cr 500,000
↓ -500,000 Power Finance Corporation Ltd.
Debentures | -6% ₹5 Cr 500,000
↑ 500,000 Reliance Industries Limited
Debentures | -6% ₹5 Cr 500,000
↑ 500,000 Clearing Corporation Of India Ltd.
CBLO | -6% ₹5 Cr 2. ICICI Prudential Short Term Fund
CAGR/Annualized return of 8.1% since its launch. Ranked 11 in Short term Bond category. Return for 2018 was 5.8% , 2017 was 5.9% and 2016 was 11.1% . ICICI Prudential Short Term Fund
Growth Launch Date 25 Oct 01 NAV (13 Dec 19) ₹41.0352 ↓ -0.02 (-0.05 %) Net Assets (Cr) ₹10,909 on 31 Oct 19 Category Debt - Short term Bond AMC ICICI Prudential Asset Management Company Limited Rating ☆☆☆☆ Risk Moderate Expense Ratio 1.24 Sharpe Ratio 4.37 Information Ratio -0.54 Alpha Ratio -1.09 Min Investment 5,000 Min SIP Investment 1,000 Exit Load 0-7 Days (0.25%),7 Days and above(NIL) Yield to Maturity 7.28% Effective Maturity 2 Years 6 Months 29 Days Modified Duration 1 Year 10 Months 24 Days Growth of 10,000 investment over the years.
Date Value 30 Nov 14 ₹10,000 30 Nov 15 ₹10,833 30 Nov 16 ₹12,169 30 Nov 17 ₹12,847 30 Nov 18 ₹13,460 30 Nov 19 ₹14,838 Returns for ICICI Prudential Short Term Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 13 Dec 19 Duration Returns 1 Month 0.2% 3 Month 1.6% 6 Month 4.5% 1 Year 9.6% 3 Year 6.9% 5 Year 8% 10 Year 15 Year Since launch 8.1% Historical performance (Yearly) on absolute basis
Year Returns 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% 2009 5.8% Fund Manager information for ICICI Prudential Short Term Fund
Name Since Tenure Manish Banthia 19 Nov 09 9.53 Yr. Data below for ICICI Prudential Short Term Fund as on 31 Oct 19
Asset Allocation
Asset Class Value Cash 11.51% Debt 88.49% Debt Sector Allocation
Sector Value Corporate 66.36% Government 25.29% Cash Equivalent 8.35% Credit Quality
Rating Value AA 17.57% AAA 82.43% Top Securities Holdings / Portfolio
Name Holding Value Quantity GOVT STOCK
Sovereign Bonds | -6% ₹609 Cr 58,000,000
↑ 17,000,000 LIC HOUSING FINANCE LIMITED
Debentures | -4% ₹430 Cr 4,250 PIPELINE INFRASTRUCTURE PRIVATE LIMITED
Debentures | -3% ₹356 Cr 3,529
↑ 1,100 State Bank Of India
Debentures | -3% ₹311 Cr 3,000 Net Current Assets
Net Current Assets | -3% ₹292 Cr NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT
Debentures | -2% ₹268 Cr 2,550 Treps
CBLO/Reverse Repo | -2% ₹254 Cr TATA MOTORS FINANCE LIMITED
Debentures | -2% ₹251 Cr 2,500 Reliance Utilities And Power Private Limited
Debentures | -2% ₹235 Cr 2,250 Reliance Ports And Terminals Limited
Debentures | -2% ₹215 Cr 2,078 3. Reliance Short Term Fund
CAGR/Annualized return of 8% since its launch. Ranked 17 in Short term Bond category. Return for 2018 was 5.5% , 2017 was 5.7% and 2016 was 9.8% . Reliance Short Term Fund
Growth Launch Date 18 Dec 02 NAV (13 Dec 19) ₹36.9073 ↓ -0.02 (-0.05 %) Net Assets (Cr) ₹5,910 on 31 Oct 19 Category Debt - Short term Bond AMC Reliance Nippon Life Asset Management Ltd. Rating ☆☆☆☆ Risk Moderately Low Expense Ratio 1.1 Sharpe Ratio 4.31 Information Ratio -1.41 Alpha Ratio -1.44 Min Investment 5,000 Min SIP Investment 100 Exit Load NIL Yield to Maturity 7.4% Effective Maturity 2 Years 5 Months 12 Days Modified Duration 2 Years 14 Days Growth of 10,000 investment over the years.
Date Value 30 Nov 14 ₹10,000 30 Nov 15 ₹10,849 30 Nov 16 ₹12,037 30 Nov 17 ₹12,684 30 Nov 18 ₹13,231 30 Nov 19 ₹14,586 Returns for Reliance Short Term Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 13 Dec 19 Duration Returns 1 Month 0.2% 3 Month 1.7% 6 Month 4.7% 1 Year 9.5% 3 Year 6.7% 5 Year 7.6% 10 Year 15 Year Since launch 8% Historical performance (Yearly) on absolute basis
Year Returns 2018 5.5% 2017 5.7% 2016 9.8% 2015 8.1% 2014 11.3% 2013 7.5% 2012 9.8% 2011 7.9% 2010 5% 2009 8.9% Fund Manager information for Reliance Short Term Fund
Name Since Tenure Prashant Pimple 10 Jan 06 13.81 Yr. Kinjal Desai 25 May 18 1.44 Yr. Data below for Reliance Short Term Fund as on 31 Oct 19
Asset Allocation
Asset Class Value Cash 18.38% Debt 81.62% Other 0% Debt Sector Allocation
Sector Value Corporate 61.11% Government 23.5% Cash Equivalent 15.39% Credit Quality
Rating Value AA 14.76% AAA 85.24% Top Securities Holdings / Portfolio
Name Holding Value Quantity GOVT STOCK
Sovereign Bonds | -12% ₹681 Cr 65,500,000
↑ 42,500,000 Triparty Repo
CBLO/Reverse Repo | -8% ₹455 Cr Muthoot Finance Limited
Debentures | -5% ₹310 Cr 3,171,098 State Bank Of India
Debentures | -5% ₹303 Cr 3,000 NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT
Debentures | -5% ₹299 Cr 2,850
↓ -300 INDIA GRID TRUST
Debentures | -4% ₹213 Cr 2,100 Housing Development Finance Corporation Limited
Debentures | -3% ₹204 Cr 2,000 LIC Housing Finance Limited
Debentures | -3% ₹201 Cr 2,000 EMBASSY OFFICE PARKS REIT
Debentures | -3% ₹193 Cr 1,830 Reliance Utilities And Power Private Limited
Debentures | -3% ₹190 Cr 1,865 4. Aditya Birla Sun Life Short Term Opportunities Fund
CAGR/Annualized return of 7.4% since its launch. Ranked 18 in Short term Bond category. Return for 2018 was 6.5% , 2017 was 5.6% and 2016 was 11.3% . Aditya Birla Sun Life Short Term Opportunities Fund
Growth Launch Date 9 May 03 NAV (13 Dec 19) ₹32.7693 ↑ 0.01 (0.02 %) Net Assets (Cr) ₹3,220 on 31 Oct 19 Category Debt - Short term Bond AMC Birla Sun Life Asset Management Co Ltd Rating ☆☆☆☆ Risk Moderate Expense Ratio 1.16 Sharpe Ratio 3.8 Information Ratio -0.47 Alpha Ratio -1.9 Min Investment 1,000 Min SIP Investment 1,000 Exit Load 0-90 Days (0.5%),90 Days and above(NIL) Yield to Maturity 7.75% Effective Maturity 2 Years 5 Months 1 Day Modified Duration 1 Year 10 Months 24 Days Growth of 10,000 investment over the years.
Date Value 30 Nov 14 ₹10,000 30 Nov 15 ₹10,851 30 Nov 16 ₹12,250 30 Nov 17 ₹12,843 30 Nov 18 ₹13,529 30 Nov 19 ₹14,861 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 13 Dec 19 Duration Returns 1 Month 0.1% 3 Month 1.5% 6 Month 4.2% 1 Year 8.9% 3 Year 6.7% 5 Year 8% 10 Year 15 Year Since launch 7.4% Historical performance (Yearly) on absolute basis
Year Returns 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% 2009 8.1% Fund Manager information for Aditya Birla Sun Life Short Term Opportunities Fund
Name Since Tenure Maneesh Dangi 1 Apr 17 2.58 Yr. Kaustubh Gupta 11 Sep 14 5.14 Yr. Data below for Aditya Birla Sun Life Short Term Opportunities Fund as on 31 Oct 19
Asset Allocation
Asset Class Value Cash 12.34% Debt 87.66% Debt Sector Allocation
Sector Value Corporate 50.05% Government 39.78% Cash Equivalent 10.05% Securitized 0.13% Credit Quality
Rating Value A 9.73% AA 19.53% AAA 69.56% Below B 1.18% Top Securities Holdings / Portfolio
Name Holding Value Quantity ADANI PROPERTIES PRIVATE LIMITED
Debentures | -6% ₹196 Cr 171
↓ -29 Clearing Corporation Of India Limited
CBLO | -5% ₹156 Cr REC LIMITED
Debentures | -5% ₹149 Cr 1,450 NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT
Debentures | -3% ₹110 Cr 1,050 Net Receivables / (Payables)
Net Current Assets | -3% ₹105 Cr SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA
Debentures | -3% ₹102 Cr 1,000 7.72% GS 2025
Sovereign Bonds | -3% ₹100 Cr 9,500,000
↑ 9,500,000 Punjab National Bank
Debentures | -3% ₹98 Cr 1,000 GOVT STOCK
Sovereign Bonds | -3% ₹97 Cr 9,500,000
↑ 9,500,000 State Bank Of India
Debentures | -3% ₹96 Cr 950 5. UTI Short Term Income Fund
CAGR/Annualized return of 6.3% since its launch. Ranked 10 in Short term Bond category. Return for 2018 was 6% , 2017 was 6.1% and 2016 was 10.1% . UTI Short Term Income Fund
Growth Launch Date 19 Sep 07 NAV (13 Dec 19) ₹21.1045 ↓ -0.01 (-0.05 %) Net Assets (Cr) ₹2,202 on 31 Oct 19 Category Debt - Short term Bond AMC UTI Asset Management Company Ltd Rating ☆☆☆☆ Risk Moderate Expense Ratio 0.9 Sharpe Ratio -0.48 Information Ratio -0.7 Alpha Ratio -36.76 Min Investment 10,000 Min SIP Investment 500 Exit Load NIL Yield to Maturity 7.23% Effective Maturity 2 Years 5 Months 1 Day Modified Duration 2 Years 1 Month 2 Days Growth of 10,000 investment over the years.
Date Value 30 Nov 14 ₹10,000 30 Nov 15 ₹10,877 30 Nov 16 ₹12,092 30 Nov 17 ₹12,779 30 Nov 18 ₹13,427 30 Nov 19 ₹13,004 Returns for UTI Short Term Income Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 13 Dec 19 Duration Returns 1 Month 0.3% 3 Month 1.8% 6 Month 5% 1 Year -3.9% 3 Year 2.5% 5 Year 5.2% 10 Year 15 Year Since launch 6.3% Historical performance (Yearly) on absolute basis
Year Returns 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% 2009 Fund Manager information for UTI Short Term Income Fund
Name Since Tenure Sudhir Agarwal 25 Oct 12 6.43 Yr. Data below for UTI Short Term Income Fund as on 31 Oct 19
Asset Allocation
Asset Class Value Cash 17.15% Debt 82.85% Debt Sector Allocation
Sector Value Corporate 56.54% Government 35.37% Cash Equivalent 8.09% Credit Quality
Rating Value A 9.09% AA 13.92% AAA 76.99% Top Securities Holdings / Portfolio
Name Holding Value Quantity Syndicate Bank
Certificate of Deposit | -9% ₹199 Cr 2,000,000,000 Punjab National Bank
Debentures | -8% ₹184 Cr 1,870
↓ -130 Net Current Assets
Net Current Assets | -8% ₹170 Cr 00 STATE BANK OF INDIA
Debentures | -7% ₹156 Cr 1,500 REC LIMITED
Debentures | -6% ₹137 Cr 1,328 Larsen And Toubro Limited
Debentures | -6% ₹126 Cr 1,228 Bank Of Baroda
Debentures | -6% ₹126 Cr 1,250 Housing Development Finance Corporation Limited
Debentures | -5% ₹102 Cr 1,000 HOUSING AND URBAN DEVELOPMENT CORPORATION LIMITED (HUDCO)
Debentures | -5% ₹101 Cr 1,000 National Bank For Agriculture And Rural Development
Debentures | -4% ₹98 Cr 950
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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