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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 October 17, 2019 , 1320 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 2019

Some of the best short term debt funds include-

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)2018 (%)Debt Yield (YTM)Mod. DurationEff. Maturity
DHFL Pramerica Short Maturity Fund Growth ₹32.6581
↑ 0.02
₹1117.4-2.50.84.25.534.98%2M 5D2M 19D
Reliance Short Term Fund Growth ₹36.5416
↑ 0.02
₹6,2342.3510.26.85.57.92%2Y 1M 10D2Y 7M 10D
Aditya Birla Sun Life Short Term Opportunities Fund Growth ₹32.5669
↑ 0.04
₹3,13125.31076.58.59%2Y 4M 2D3Y 11D
ICICI Prudential Short Term Fund Growth ₹40.6155
↑ 0.02
₹9,64525107.15.87.73%1Y 11M 12D2Y 6M 7D
UTI Short Term Income Fund Growth ₹20.8998
↑ 0.01
₹2,2782.3-7.2-3.52.767.68%2Y 4M 17D2Y 11M 5D
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 18 Oct 19

1. DHFL Pramerica Short Maturity Fund

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 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% .

Below is the key information for DHFL Pramerica Short Maturity Fund

DHFL Pramerica Short Maturity Fund
Growth
Launch Date 21 Jan 03
NAV (18 Oct 19) ₹32.6581 ↑ 0.02   (0.08 %)
Net Assets (Cr) ₹111 on 31 Aug 19
Category Debt - Short term Bond
AMC DHFL Pramerica Asset Managers Private Limited
Rating
Risk Moderate
Expense Ratio 1.45
Sharpe Ratio -0.3
Information Ratio -0.53
Alpha Ratio -25.05
Min Investment 5,000
Min SIP Investment 500
Exit Load 0-6 Months (0.5%),6 Months and above(NIL)
Yield to Maturity 34.98%
Effective Maturity 2 Months 19 Days
Modified Duration 2 Months 5 Days

Growth of 10,000 investment over the years.

DateValue
30 Sep 14₹10,000
30 Sep 15₹10,983
30 Sep 16₹12,011
30 Sep 17₹13,004
30 Sep 18₹13,529
30 Sep 19₹13,617

DHFL Pramerica Short Maturity Fund SIP Returns

   
My Monthly Investment:
Investment Tenure:
Years
Expected Annual Returns:
%
Total investment amount is ₹180,000
expected amount after 3 Years is ₹200,132.
Net Profit of ₹20,132
Invest Now

Returns for DHFL Pramerica Short Maturity Fund

Returns up to 1 year are on absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 18 Oct 19

DurationReturns
1 Month 51.8%
3 Month 7.4%
6 Month -2.5%
1 Year 0.8%
3 Year 4.2%
5 Year 6.3%
10 Year
15 Year
Since launch 7.3%
Historical performance (Yearly) on absolute basis
YearReturns
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
NameSinceTenure
Kumaresh Ramakrishnan13 Dec 171.8 Yr.
Puneet Pal13 Dec 171.8 Yr.

Data below for DHFL Pramerica Short Maturity Fund as on 31 Aug 19

Asset Allocation
Asset ClassValue
Cash65.61%
Debt34.39%
Debt Sector Allocation
SectorValue
Cash Equivalent65.61%
Government27.08%
Corporate7.31%
Credit Quality
RatingValue
BBB100%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
Clearing Corporation Of India Ltd.
CBLO | -
78%₹77 Cr
Net Receivables / (Payables)
Net Current Assets | -
12%-₹12 Cr
GOVT STOCK
Sovereign Bonds | -
11%₹10 Cr1,000,000
↑ 1,000,000
BHARAT PETROLEUM CORPORATION LIMITED
Debentures | -
9%₹9 Cr830,000
↑ 830,000
Yes Bank Limited
Debentures | -
7%₹7 Cr830,000
↓ -160,000
GOVT STOCK
Sovereign Bonds | -
5%₹5 Cr500,000
↑ 500,000
7.26% Govt Stock 2029
Sovereign Bonds | -
3%₹3 Cr250,000
↑ 250,000

2. Reliance Short Term Fund

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 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% .

Below is the key information for Reliance Short Term Fund

Reliance Short Term Fund
Growth
Launch Date 18 Dec 02
NAV (18 Oct 19) ₹36.5416 ↑ 0.02   (0.06 %)
Net Assets (Cr) ₹6,234 on 31 Aug 19
Category Debt - Short term Bond
AMC Reliance Nippon Life Asset Management Ltd.
Rating
Risk Moderately Low
Expense Ratio 1.12
Sharpe Ratio 3.19
Information Ratio -1.38
Alpha Ratio -1.36
Min Investment 5,000
Min SIP Investment 100
Exit Load NIL
Yield to Maturity 7.92%
Effective Maturity 2 Years 7 Months 10 Days
Modified Duration 2 Years 1 Month 10 Days

Growth of 10,000 investment over the years.

DateValue
30 Sep 14₹10,000
30 Sep 15₹11,015
30 Sep 16₹12,044
30 Sep 17₹12,918
30 Sep 18₹13,347
30 Sep 19₹14,660

Reliance 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 ₹203,125.
Net Profit of ₹23,125
Invest Now

Returns for Reliance 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 18 Oct 19

DurationReturns
1 Month 0.7%
3 Month 2.3%
6 Month 5%
1 Year 10.2%
3 Year 6.8%
5 Year 7.9%
10 Year
15 Year
Since launch 8%
Historical performance (Yearly) on absolute basis
YearReturns
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
NameSinceTenure
Prashant Pimple10 Jan 0613.73 Yr.
Kinjal Desai25 May 181.35 Yr.

Data below for Reliance Short Term Fund as on 31 Aug 19

Asset Allocation
Asset ClassValue
Cash16.7%
Debt83.3%
Other0.01%
Debt Sector Allocation
SectorValue
Corporate68.63%
Government19.35%
Cash Equivalent12.01%
Credit Quality
RatingValue
AA15.25%
AAA84.75%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
EMBASSY OFFICE PARKS REIT
Debentures | -
6%₹383 Cr3,680
↓ -140
Housing Development Finance Corporation Limited
Debentures | -
6%₹379 Cr3,750
↑ 1,500
NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT
Debentures | -
6%₹353 Cr3,400
↓ -200
Muthoot Finance Limited
Debentures | -
5%₹311 Cr3,171,098
State Bank Of India
Debentures | -
5%₹301 Cr3,000
↑ 3,000
INDUSIND BANK LIMITED
Debentures | -
4%₹227 Cr2,329
INDIA GRID TRUST
Debentures | -
3%₹211 Cr2,100
↓ -250
Housing Development Finance Corporation Limited
Debentures | -
3%₹203 Cr2,000
↑ 750
Reliance Utilities And Power Private Limited
Debentures | -
3%₹187 Cr1,865
↑ 25
Net Current Assets
Net Current Assets | -
3%₹160 Cr

3. Aditya Birla Sun Life Short Term Opportunities Fund

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 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% .

Below is the key information for Aditya Birla Sun Life Short Term Opportunities Fund

Aditya Birla Sun Life Short Term Opportunities Fund
Growth
Launch Date 9 May 03
NAV (18 Oct 19) ₹32.5669 ↑ 0.04   (0.11 %)
Net Assets (Cr) ₹3,131 on 31 Aug 19
Category Debt - Short term Bond
AMC Birla Sun Life Asset Management Co Ltd
Rating
Risk Moderate
Expense Ratio 1.38
Sharpe Ratio 3.56
Information Ratio -0.37
Alpha Ratio 0.2
Min Investment 1,000
Min SIP Investment 1,000
Exit Load 0-90 Days (0.5%),90 Days and above(NIL)
Yield to Maturity 8.59%
Effective Maturity 3 Years 11 Days
Modified Duration 2 Years 4 Months 2 Days

Growth of 10,000 investment over the years.

DateValue
30 Sep 14₹10,000
30 Sep 15₹11,031
30 Sep 16₹12,216
30 Sep 17₹13,084
30 Sep 18₹13,666
30 Sep 19₹14,986

Aditya Birla Sun Life Short Term Opportunities 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 Aditya Birla Sun Life Short Term Opportunities Fund

Returns up to 1 year are on absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 18 Oct 19

DurationReturns
1 Month 0.7%
3 Month 2%
6 Month 5.3%
1 Year 10%
3 Year 7%
5 Year 8.4%
10 Year
15 Year
Since launch 7.4%
Historical performance (Yearly) on absolute basis
YearReturns
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
NameSinceTenure
Maneesh Dangi1 Apr 172.42 Yr.
Kaustubh Gupta11 Sep 144.97 Yr.

Data below for Aditya Birla Sun Life Short Term Opportunities Fund as on 31 Aug 19

Asset Allocation
Asset ClassValue
Cash10.41%
Debt89.59%
Debt Sector Allocation
SectorValue
Corporate56.07%
Government33.26%
Cash Equivalent10.41%
Securitized0.26%
Credit Quality
RatingValue
A10.56%
AA21.7%
AAA66.5%
Below B1.24%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
ADANI PROPERTIES PRIVATE LIMITED
Debentures | -
7%₹222 Cr200
7.26% Govt Stock 2029
Sovereign Bonds | -
4%₹138 Cr13,209,150
↑ 1,709,150
REC LIMITED
Debentures | -
4%₹123 Cr1,200
↑ 500
NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT
Debentures | -
4%₹121 Cr1,200
NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT
Debentures | -
3%₹109 Cr1,050
↑ 200
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA
Debentures | -
3%₹101 Cr1,000
↑ 1,000
ONGC Petro Additions Limited
Debentures | -
3%₹100 Cr100
↓ -150
Punjab National Bank
Debentures | -
3%₹97 Cr1,000
LIC Housing Finance Limited
Debentures | -
3%₹92 Cr900
State Bank Of India
Debentures | -
3%₹92 Cr900
↑ 500

4. 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 8.1% 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% .

Below is the key information for ICICI Prudential Short Term Fund

ICICI Prudential Short Term Fund
Growth
Launch Date 25 Oct 01
NAV (18 Oct 19) ₹40.6155 ↑ 0.02   (0.06 %)
Net Assets (Cr) ₹9,645 on 31 Aug 19
Category Debt - Short term Bond
AMC ICICI Prudential Asset Management Company Limited
Rating
Risk Moderate
Expense Ratio 1.27
Sharpe Ratio 3.72
Information Ratio -0.38
Alpha Ratio -0.23
Min Investment 5,000
Min SIP Investment 1,000
Exit Load 0-7 Days (0.25%),7 Days and above(NIL)
Yield to Maturity 7.73%
Effective Maturity 2 Years 6 Months 7 Days
Modified Duration 1 Year 11 Months 12 Days

Growth of 10,000 investment over the years.

DateValue
30 Sep 14₹10,000
30 Sep 15₹11,039
30 Sep 16₹12,136
30 Sep 17₹13,102
30 Sep 18₹13,598
30 Sep 19₹14,919

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 18 Oct 19

DurationReturns
1 Month 0.6%
3 Month 2%
6 Month 5%
1 Year 10%
3 Year 7.1%
5 Year 8.3%
10 Year
15 Year
Since launch 8.1%
Historical performance (Yearly) on absolute basis
YearReturns
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
NameSinceTenure
Manish Banthia19 Nov 099.53 Yr.

Data below for ICICI Prudential Short Term Fund as on 31 Aug 19

Asset Allocation
Asset ClassValue
Cash7.1%
Debt92.9%
Debt Sector Allocation
SectorValue
Corporate68.93%
Government25.48%
Cash Equivalent5.59%
Credit Quality
RatingValue
AA19.58%
AAA80.42%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
LIC HOUSING FINANCE LIMITED
Debentures | -
4%₹430 Cr4,250
State Bank Of India
Debentures | -
3%₹307 Cr3,000
Net Current Assets
Net Current Assets | -
3%₹303 Cr
NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT
Debentures | -
3%₹265 Cr2,550
↑ 50
TATA MOTORS FINANCE LIMITED
Debentures | -
3%₹252 Cr2,500
PIPELINE INFRASTRUCTURE PRIVATE LIMITED
Debentures | -
3%₹245 Cr2,429
Reliance Utilities And Power Private Limited
Debentures | -
2%₹233 Cr2,250
7.26% Govt Stock 2029
Sovereign Bonds | -
2%₹227 Cr21,700,000
↑ 10,500,000
Power Finance Corporation Ltd.
Debentures | -
2%₹208 Cr2,050
Reliance Ports And Terminals Limited
Debentures | -
2%₹199 Cr1,928

5. 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 6.3% since its launch.  Ranked 10 in Short term Bond category.  Return for 2018 was 6% , 2017 was 6.1% and 2016 was 10.1% .

Below is the key information for UTI Short Term Income Fund

UTI Short Term Income Fund
Growth
Launch Date 19 Sep 07
NAV (18 Oct 19) ₹20.8998 ↑ 0.01   (0.06 %)
Net Assets (Cr) ₹2,278 on 31 Aug 19
Category Debt - Short term Bond
AMC UTI Asset Management Company Ltd
Rating
Risk Moderate
Expense Ratio 0.98
Sharpe Ratio -0.59
Information Ratio -0.7
Alpha Ratio -26.15
Min Investment 10,000
Min SIP Investment 500
Exit Load NIL
Yield to Maturity 7.68%
Effective Maturity 2 Years 11 Months 5 Days
Modified Duration 2 Years 4 Months 17 Days

Growth of 10,000 investment over the years.

DateValue
30 Sep 14₹10,000
30 Sep 15₹10,987
30 Sep 16₹12,013
30 Sep 17₹12,957
30 Sep 18₹13,529
30 Sep 19₹13,011

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 18 Oct 19

DurationReturns
1 Month 0.7%
3 Month 2.3%
6 Month -7.2%
1 Year -3.5%
3 Year 2.7%
5 Year 5.4%
10 Year
15 Year
Since launch 6.3%
Historical performance (Yearly) on absolute basis
YearReturns
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
NameSinceTenure
Sudhir Agarwal25 Oct 126.43 Yr.

Data below for UTI Short Term Income Fund as on 31 Aug 19

Asset Allocation
Asset ClassValue
Cash21.07%
Debt78.93%
Debt Sector Allocation
SectorValue
Corporate55.83%
Government34.92%
Cash Equivalent9.25%
Credit Quality
RatingValue
A10.23%
AA14.72%
AAA75.05%
Top Securities Holdings / Portfolio
NameHoldingValueQuantity
Syndicate Bank
Certificate of Deposit | -
9%₹198 Cr2,000,000,000
↑ 2,000,000,000
Net Current Assets
Net Current Assets | -
9%₹197 Cr00
Punjab National Bank
Debentures | -
9%₹196 Cr2,000
STATE BANK OF INDIA
Debentures | -
7%₹155 Cr1,500
REC LIMITED
Debentures | -
6%₹135 Cr1,328
Bank Of Baroda
Debentures | -
6%₹125 Cr1,250
Larsen And Toubro Limited
Debentures | -
6%₹125 Cr1,228
Housing Development Finance Corporation Limited
Debentures | -
5%₹101 Cr1,000
HOUSING AND URBAN DEVELOPMENT CORPORATION LIMITED (HUDCO)
Debentures | -
4%₹100 Cr1,000
↑ 1,000
National Bank For Agriculture And Rural Development
Debentures | -
4%₹97 Cr950

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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