+91-22-48913909Short 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.
Fund Selection Methodology used to find 5 funds
Top Short Duration (Short-Term) Debt Funds 2026
Some of the best short term debt funds include-
Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 2025 (%) 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 Bandhan Bond Fund Short Term Plan Growth ₹61.4638
↓ -0.02 ₹8,680 0.5 3.1 5.1 7.1 7.5 7.17% 1Y 18D 1Y 2M 19D Axis Short Term Fund Growth ₹33.2236
↓ -0.02 ₹7,425 0.5 2.8 4.6 7.1 8.1 7.77% 2Y 4D 2Y 6M 14D BNP Paribas Short Term Fund Growth ₹25.4771
↓ -0.01 ₹258 0.6 1.3 4.6 6.5 5.16% 1Y 11M 26D 2Y 3M ICICI Prudential Short Term Fund Growth ₹64.6083
↓ -0.06 ₹18,890 0.2 2.6 4.5 6.9 8 8.06% 2Y 8M 19D 4Y 7M 20D Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 31 Dec 21 Research Highlights & Commentary of 5 Funds showcased
Commentary Sundaram Short Term Debt Fund Bandhan Bond Fund Short Term Plan Axis Short Term Fund BNP Paribas Short Term Fund ICICI Prudential Short Term Fund Point 1 Bottom quartile AUM (₹362 Cr). Upper mid AUM (₹8,680 Cr). Lower mid AUM (₹7,425 Cr). Bottom quartile AUM (₹258 Cr). Highest AUM (₹18,890 Cr). Point 2 Established history (24+ yrs). Oldest track record among peers (25 yrs). Established history (16+ yrs). Established history (22+ yrs). Established history (25+ yrs). Point 3 Rating: 2★ (bottom quartile). Rating: 2★ (bottom quartile). Rating: 3★ (upper mid). Rating: 3★ (lower mid). Top rated. Point 4 Risk profile: Moderately Low. Risk profile: Moderately Low. Risk profile: Moderately Low. Risk profile: Moderately Low. Risk profile: Moderate. Point 5 1Y return: 12.83% (top quartile). 1Y return: 5.13% (upper mid). 1Y return: 4.63% (lower mid). 1Y return: 4.59% (bottom quartile). 1Y return: 4.54% (bottom quartile). Point 6 1M return: 0.20% (bottom quartile). 1M return: 0.32% (lower mid). 1M return: 0.50% (top quartile). 1M return: 0.16% (bottom quartile). 1M return: 0.46% (upper mid). Point 7 Sharpe: 0.98 (top quartile). Sharpe: 0.07 (lower mid). Sharpe: -0.21 (bottom quartile). Sharpe: 0.07 (upper mid). Sharpe: -0.11 (bottom quartile). Point 8 Information ratio: 0.00 (top quartile). Information ratio: 0.00 (upper mid). Information ratio: 0.00 (lower mid). Information ratio: -0.85 (bottom quartile). Information ratio: 0.00 (bottom quartile). Point 9 Yield to maturity (debt): 4.52% (bottom quartile). Yield to maturity (debt): 7.17% (lower mid). Yield to maturity (debt): 7.77% (upper mid). Yield to maturity (debt): 5.16% (bottom quartile). Yield to maturity (debt): 8.06% (top quartile). Point 10 Modified duration: 1.20 yrs (upper mid). Modified duration: 1.05 yrs (top quartile). Modified duration: 2.01 yrs (bottom quartile). Modified duration: 1.99 yrs (lower mid). Modified duration: 2.72 yrs (bottom quartile). Sundaram Short Term Debt Fund
Bandhan Bond Fund Short Term Plan
Axis Short Term Fund
BNP Paribas Short Term Fund
ICICI Prudential Short Term Fund
*Above is list of best 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. Below is the key information for Sundaram Short Term Debt Fund Returns up to 1 year are on (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. Research Highlights for Bandhan Bond Fund Short Term Plan Below is the key information for Bandhan Bond Fund Short Term Plan 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. Research Highlights for Axis Short Term Fund Below is the key information for Axis Short Term Fund Returns up to 1 year are on (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. Research Highlights for BNP Paribas Short Term Fund Below is the key information for BNP Paribas Short Term 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. Research Highlights for ICICI Prudential Short Term Fund Below is the key information for ICICI Prudential Short Term Fund Returns up to 1 year are on 1. 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.
Date Value 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 2025 2024 2023 2022 2021 2020 2019 2018 2017 2016 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. Bandhan Bond Fund Short Term Plan
Bandhan Bond Fund Short Term Plan
Growth Launch Date 14 Dec 00 NAV (13 Nov 26) ₹61.4638 ↓ -0.02 (-0.03 %) Net Assets (Cr) ₹8,680 on 30 Sep 26 Category Debt - Short term Bond AMC IDFC Asset Management Company Limited Rating ☆☆ Risk Moderately Low Expense Ratio 0.82 Sharpe Ratio 0.07 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 1,000 Exit Load NIL Yield to Maturity 7.17% Effective Maturity 1 Year 2 Months 19 Days Modified Duration 1 Year 18 Days Growth of 10,000 investment over the years.
Date Value 31 Oct 21 ₹10,000 31 Oct 22 ₹10,201 31 Oct 23 ₹10,876 31 Oct 24 ₹11,795 31 Oct 25 ₹12,727 31 Oct 26 ₹13,365 Returns for Bandhan Bond Fund Short Term Plan
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 31 Dec 21 Duration Returns 1 Month 0.3% 3 Month 0.5% 6 Month 3.1% 1 Year 5.1% 3 Year 7.1% 5 Year 6% 10 Year 15 Year Since launch 7.3% Historical performance (Yearly) on absolute basis
Year Returns 2025 7.5% 2024 7.8% 2023 6.9% 2022 2.8% 2021 3.4% 2020 9.7% 2019 9.7% 2018 6.5% 2017 5.9% 2016 8.8% Fund Manager information for Bandhan Bond Fund Short Term Plan
Name Since Tenure Suyash Choudhary 11 Mar 11 15.57 Yr. Brijesh Shah 10 Jun 24 2.31 Yr. Data below for Bandhan Bond Fund Short Term Plan as on 30 Sep 26
Asset Allocation
Asset Class Value Cash 44.33% Debt 55.31% Other 0.37% Debt Sector Allocation
Sector Value Corporate 69.73% Cash Equivalent 16.5% Government 13.4% Credit Quality
Rating Value AAA 100% Top Securities Holdings / Portfolio
Name Holding Value Quantity Small Industries Development Bank of India
Debentures | -5% ₹403 Cr 43,000,000 National Bank For Agriculture And Rural Development
Debentures | -4% ₹371 Cr 37,500,000
↓ -2,500,000 Bajaj Finance Limited
Debentures | -3% ₹269 Cr 27,500,000 Tata Capital Housing Finance Limited
Debentures | -3% ₹249 Cr 25,000,000 Tata Capital Limited
Debentures | -2% ₹198 Cr 20,000,000 Indian Railway Finance Corporation Limited
Debentures | -2% ₹198 Cr 20,000,000 Bajaj Housing Finance Limited
Debentures | -2% ₹197 Cr 20,000,000 Rec Limited
Debentures | -2% ₹187 Cr 18,500,000 LIC Housing Finance Ltd
Debentures | -2% ₹169 Cr 17,000,000 Small Industries Development Bank of India
Debentures | -2% ₹164 Cr 17,500,000 3. Axis Short Term Fund
Axis Short Term Fund
Growth Launch Date 22 Jan 10 NAV (13 Nov 26) ₹33.2236 ↓ -0.02 (-0.06 %) Net Assets (Cr) ₹7,425 on 30 Sep 26 Category Debt - Short term Bond AMC Axis Asset Management Company Limited Rating ☆☆☆ Risk Moderately Low Expense Ratio 0.91 Sharpe Ratio -0.21 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 1,000 Exit Load NIL Yield to Maturity 7.77% Effective Maturity 2 Years 6 Months 14 Days Modified Duration 2 Years 4 Days Growth of 10,000 investment over the years.
Date Value 31 Oct 21 ₹10,000 31 Oct 22 ₹10,306 31 Oct 23 ₹10,976 31 Oct 24 ₹11,882 31 Oct 25 ₹12,901 31 Oct 26 ₹13,451 Returns for Axis 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 0.5% 3 Month 0.5% 6 Month 2.8% 1 Year 4.6% 3 Year 7.1% 5 Year 6.2% 10 Year 15 Year Since launch 7.4% Historical performance (Yearly) on absolute basis
Year Returns 2025 8.1% 2024 8% 2023 6.8% 2022 3.7% 2021 3.5% 2020 10.1% 2019 9.8% 2018 6.3% 2017 5.9% 2016 9.6% Fund Manager information for Axis Short Term Fund
Name Since Tenure Devang Shah 5 Nov 12 13.91 Yr. Aditya Pagaria 3 Jul 23 3.25 Yr. Data below for Axis Short Term Fund as on 30 Sep 26
Asset Allocation
Asset Class Value Cash 17.91% Debt 81.6% Other 0.49% Debt Sector Allocation
Sector Value Corporate 66.89% Government 17.08% Cash Equivalent 15.54% Credit Quality
Rating Value AA 15.94% AAA 84.06% Top Securities Holdings / Portfolio
Name Holding Value Quantity Nuclear Power Corporation Of India Limited
Debentures | -4% ₹299 Cr 30,000 Bajaj Housing Finance Limited
Debentures | -3% ₹229 Cr 23,870
↑ 11,370 SIDDHIVINAYAK SECURITISATION TRUST
Unlisted bonds | -3% ₹202 Cr 213 Small Industries Development Bank Of India
Debentures | -3% ₹196 Cr 20,000 Power Finance Corporation Limited
Debentures | -3% ₹195 Cr 20,000 National Bank For Agriculture And Rural Development
Debentures | -2% ₹178 Cr 17,900 Indigrid Infrastructure Trust
Debentures | -2% ₹140 Cr 14,000 Jubilant Beverages Limited
Debentures | -2% ₹121 Cr 10,750 Rec Limited
Debentures | -2% ₹121 Cr 12,500
↑ 12,500 L&T Metro Rail (Hyderabad) Limited
Debentures | -2% ₹120 Cr 12,500 4. 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.
Date Value Returns for BNP Paribas 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 0.2% 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
Year Returns 2025 2024 2023 2022 2021 2020 2019 2018 2017 2016 Fund Manager information for BNP Paribas Short Term Fund
Name Since Tenure Data below for BNP Paribas Short Term Fund as on 15 Feb 22
Asset Allocation
Asset Class Value Debt Sector Allocation
Sector Value Credit Quality
Rating Value Top Securities Holdings / Portfolio
Name Holding Value Quantity 5. ICICI Prudential Short Term Fund
ICICI Prudential Short Term Fund
Growth Launch Date 25 Oct 01 NAV (13 Nov 26) ₹64.6083 ↓ -0.06 (-0.10 %) Net Assets (Cr) ₹18,890 on 30 Sep 26 Category Debt - Short term Bond AMC ICICI Prudential Asset Management Company Limited Rating ☆☆☆☆ Risk Moderate Expense Ratio 1.05 Sharpe Ratio -0.11 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 8.06% Effective Maturity 4 Years 7 Months 20 Days Modified Duration 2 Years 8 Months 19 Days Growth of 10,000 investment over the years.
Date Value 31 Oct 21 ₹10,000 31 Oct 22 ₹10,397 31 Oct 23 ₹11,138 31 Oct 24 ₹12,037 31 Oct 25 ₹13,023 31 Oct 26 ₹13,577 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 0.5% 3 Month 0.2% 6 Month 2.6% 1 Year 4.5% 3 Year 6.9% 5 Year 6.4% 10 Year 15 Year Since launch 7.7% Historical performance (Yearly) on absolute basis
Year Returns 2025 8% 2024 7.8% 2023 7.4% 2022 4.7% 2021 3.9% 2020 10.6% 2019 9.7% 2018 5.8% 2017 5.9% 2016 11.1% Fund Manager information for ICICI Prudential Short Term Fund
Name Since Tenure Manish Banthia 19 Nov 09 16.88 Yr. Nikhil Kabra 29 Dec 20 5.76 Yr. Data below for ICICI Prudential Short Term Fund as on 30 Sep 26
Asset Allocation
Asset Class Value Debt 103.33% Other 0.34% Debt Sector Allocation
Sector Value Corporate 67.96% Government 34.84% Securitized 0.54% Credit Quality
Rating Value AA 21.54% AAA 78.46% Top Securities Holdings / Portfolio
Name Holding Value Quantity National Bank For Agriculture And Rural Development
Debentures | -5% ₹939 Cr 94,500 LIC Housing Finance Ltd
Debentures | -4% ₹747 Cr 75,000 Vedanta Limited
Debentures | -3% ₹589 Cr 58,500 SHIVSHAKTI SECURITISATION TRUST
Unlisted bonds | -3% ₹571 Cr 600 National Bank For Agriculture And Rural Development
Debentures | -3% ₹531 Cr 53,500 SIDDHIVINAYAK SECURITISATION TRUST
Unlisted bonds | -2% ₹452 Cr 475 Small Industries Development Bank Of India
Debentures | -2% ₹437 Cr 44,700 Cholamandalam Investment And Finance Company Limited
Debentures | -2% ₹299 Cr 30,000 Summit Digitel Infrastructure Limited
Debentures | -2% ₹281 Cr 28,300 Small Industries Development Bank Of India
Debentures | -1% ₹268 Cr 27,000
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 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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Research Highlights for Sundaram Short Term Debt Fund