Short Term Mutual Funds

Fund name	AUM	1Y CAGR	3Y CAGR	Till Date CAGR
HDFC Short Term Debt Fund Direct (G)	₹ 14,972 Cr	8.7%	6.5%	8.1%
SBI Short Term Debt Fund Direct (G)	₹ 13,303 Cr	8.4%	6.3%	7.8%
ICICI Prudential Short Term Fund Direct (G)	₹ 19,922 Cr	8.6%	7.1%	8.5%
Kotak Bond Short-term Fund Direct (G)	₹ 16,894 Cr	8.7%	6.4%	8%
Nippon India Short-term Fund Direct (G)	₹ 7,586 Cr	8.7%	6.5%	8.1%
Axis Short Duration Fund Direct (G)	₹ 9,303 Cr	8.7%	6.6%	8.2%
Bandhan Bond Fund Short Term Plan Direct (G)	₹ 9,724 Cr	8.7%	6.1%	7.8%
HSBC Short Duration Fund Direct (G)	₹ 3,785 Cr	8.3%	5.9%	7.7%
DSP Short-term Fund Direct (G)	₹ 2,828 Cr	8.5%	6.2%	7.8%
Tata Short Term Bond Fund Direct (G)	₹ 2,904 Cr	8.4%	6.3%	7.5%
Aditya Birla Sun Life Short Term Fund Direct (G)	₹ 8,923 Cr	8.7%	6.9%	8.6%
Mirae Asset Short Duration Fund Direct (G)	₹ 365 Cr	8.6%	6.3%	7%
Canara Robeco Short Duration Fund Direct (G)	₹ 351 Cr	8%	5.9%	7.2%
Invesco India Short Duration Fund Direct (G)	₹ 443 Cr	8.4%	6%	7.6%
Bank of India Short Term Income Fund Direct (G)	₹ 71 Cr	9.9%	13.9%	6.9%
UTI Short Duration Fund Direct (G)	₹ 2,675 Cr	8.6%	6.6%	7.4%
Sundaram Short Duration Fund Direct (G)	₹ 222 Cr	8.7%	6.5%	7.5%
LIC MF Short Duration Fund Direct (G)	₹ 109 Cr	8.7%	6.1%	6.8%
Groww Short Duration Fund Direct (G)	₹ 55 Cr	8.4%	5.8%	7.5%
Baroda BNP Paribas Short Duration Fund Direct (G)	₹ 196 Cr	8.5%	6.4%	7.9%

Top 10 Short Term Mutual Funds to invest in 2024

Below are the short term mutual funds in india:

1. HDFC Short Term Debt Fund Direct (G)

HDFC Short Term Debt Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.7%, a 3 Years return of 6.5% and a 5 Years return of 7.1%. The fund has an expense ratio of 0.4% and an AUM of ₹14972 crores as of 2024-11-29. It was Launched on 2013-01-01. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 096.55% to debt and 3.45% to other assets.

2. SBI Short Term Debt Fund Direct (G)

SBI Short Term Debt Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.4%, a 3 Years return of 6.3% and a 5 Years return of 6.5%. The fund has an expense ratio of 0.3% and an AUM of ₹13303 crores as of 2024-11-29.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 094.68% to debt and 5.32% to other assets.

3. ICICI Prudential Short Term Fund Direct (G)

ICICI Prudential Short Term Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.6%, a 3 Years return of 7.1% and a 5 Years return of 7.6%. The fund has an expense ratio of 0.5% and an AUM of ₹19922 crores as of 2024-11-29.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 096.62% to debt and 3.38% to other assets.

4. Kotak Bond Short-term Fund Direct (G)

Kotak Bond Short-term Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.7%, a 3 Years return of 6.4% and a 5 Years return of 6.8%. The fund has an expense ratio of 0.4% and an AUM of ₹16895 crores as of 2024-11-29.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 096.44% to debt and 3.57% to other assets.

5. Nippon India Short-term Fund Direct (G)

Nippon India Short-term Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.7%, a 3 Years return of 6.5% and a 5 Years return of 7.0%. The fund has an expense ratio of 0.4% and an AUM of ₹7586 crores as of 2024-11-29.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 095.99% to debt and 4.00% to other assets.

6. Axis Short Duration Fund Direct (G)

Axis Short Duration Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.7%, a 3 Years return of 6.6% and a 5 Years return of 7.0%. The fund has an expense ratio of 0.4% and an AUM of ₹9304 crores as of 2024-11-29.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 098.83% to debt and 1.17% to other assets.

7. Bandhan Bond Fund Short Term Plan Direct (G)

Bandhan Bond Fund Short Term Plan Direct (G) is a Debt fund that has delivered a 1 Year return of 8.7%, a 3 Years return of 6.1% and a 5 Years return of 6.5%. The fund has an expense ratio of 0.3% and an AUM of ₹9725 crores as of 2024-11-29.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 097.20% to debt and 2.80% to other assets.

8. HSBC Short Duration Fund Direct (G)

HSBC Short Duration Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.3%, a 3 Years return of 5.9% and a 5 Years return of 6.3%. The fund has an expense ratio of 0.3% and an AUM of ₹3786 crores as of 2024-11-29. It was Launched on 2013-01-01. The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 099.33% to debt and 0.67% to other assets.

9. DSP Short-term Fund Direct (G)

DSP Short-term Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.5%, a 3 Years return of 6.2% and a 5 Years return of 6.4%. The fund has an expense ratio of 0.3% and an AUM of ₹2829 crores as of 2024-11-29.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 097.11% to debt and 2.89% to other assets.

10. Tata Short Term Bond Fund Direct (G)

Tata Short Term Bond Fund Direct (G) is a Debt fund that has delivered a 1 Year return of 8.4%, a 3 Years return of 6.3% and a 5 Years return of 6.6%. The fund has an expense ratio of 0.4% and an AUM of ₹2904 crores as of 2024-11-29.The minimum SIP investment is ₹1000 and the minimum lump sum investment is ₹5000. The fund allocates 096.88% to debt and 3.12% to other assets.

What are Short Term Mutual Funds?

Short term mutual funds are a type of debt mutual fund schemes also known as short duration funds. They are open ended debt schemes available for a short duration. One can invest in this scheme from 1 month to a couple of years, depending on the availability of their disposal income. Generally, the Macaulay duration for a short term mutual fund ranges from one year to three years.

Did you know?

As per SEBI’s guidelines, there is nothing specifically termed as short-term mutual funds, which basically means that there is no such thing as short-term mutual funds! Thus, technically, rather than being a categorization, short-term mutual funds are investments made for a brief period of less than 5 years.

Some kinds of debt funds can be considered short duration mutual funds. Also known as short duration schemes, these are open-ended debt schemes available for short durations. You could invest in this mutual fund for 1 month or a couple of years, depending on the availability of the money at your disposal. Typically, the Macaulay (average) duration for short term funds ranges from one year to three years (and may be extended up to four years).

Short duration mutual funds like ultra-short duration funds or short-duration funds in India offer stable returns and low to moderate risks. Thus, they are comparable to Fixed Deposits (FDs) offered by banks. Conventionally, Fixed Deposits are considered to be the best saving plan for short term money.

Who Should Invest in Short Term Funds?

These funds are suitable for investors having an investment horizon of one year to three years. These funds can be a better option than parking their money in a fixed deposit. Therefore, they can provide better returns than bank fixed deposits and offer much needed liquidity.

Additionally, investors looking for low risk investment avenues while making decent tax-adjusted returns can choose to invest in short term mutual funds. As such, investors can preserve their capital investment while drawing a moderate yield by investing in the best mutual funds for the short term.

For the first time, those who want to start building a debt fund portfolio can start investing in short duration funds. These funds aim to provide stable returns as they have a moderate amount of interest rate risk. Furthermore, short term mutual funds have the potential to earn more than bank fixed deposits. Thus these funds tend to perform better in a falling interest rate scenario, providing substantial returns to the investor.

Benefits of Short Term Mutual Funds

After knowing the advantages of short-term mutual funds over fixed deposits, you may be interested in knowing the other benefits of mutual funds for the short term.

1. Stable Returns on Investment

Almost all short-term funds are debt funds, which have been classified on the basis of the holding period. Debt funds are more reliable than equity funds as they put your money in fixed income securities such as Government Securities, Corporate Bonds, Treasury Bulls, and Money Market Instruments (and more).

As a result, short-term debt mutual funds have the capacity to generate a fixed rate of return for a predetermined date of maturity. Further, the best short duration funds of India are generally immune to the capital market movement.

2. Diversifies Your Portfolio

Short-term debt funds help in diversifying and balancing your portfolio. Unlike equity investments, which require a longer duration, short duration funds can not only avert risks but also offer attractive returns for investments within a period of 3 years.

3. Helps Meet Your Financial Goals

Whether you wish to park your money for less than a year or a maximum period of three years, short duration mutual fund investments are ideal for short duration investment plans with good returns. They continue to offer attractive returns on the investment. It is because of the fact that they offer a higher post-tax return than their counterparts.

Risks or Limitations of Short Term Mutual Funds

While short duration mutual funds definitely are less risky, when compared to equity funds, they still carry their own risks and limitations. Here are some of the possible risks while investing in short term mutual funds:

Credit Risk Exposure

Any short–term debt Mutual funds for short term carries with it a varied credit risk. Credit rating agencies such as CRISIL award ratings to short term debt funds, which indicates their credit quality and risk exposure. Thus, investments in these mutual funds will expose you to credit risks if the company happens to default on their payments.

Variable Rate of Interest

The NAV of a debt mutual fund and the returns offered by it are controlled by the prevailing rate of interest. A high rate of interest will eat into your gains and vice versa. Similarly, a higher interest rate brings down the mutual fund price and the converse also stands true. Thus, having a fluctuating interest rate could affect your investment.

Low Maturity Period Risks

You need to check the average maturity value of the short term debt mutual fund to understand the interest rate risk. Thus, having a low maturity period will result in a minimum impact arising out of the change in interest rates.

Inflation Risks

Inflation could negatively impact short term funds by increasing the interest rates exponentially, thereby bringing down the value of your investment, or cut down on the returns on your investment.

Liquidity Risk

While short term debt mutual funds are more liquid than traditional instruments, the flexibility in terms of liquidity varies from one fund to another. Thus, depending on your requirements, opt for a short term debt mutual fund that gives you the flexibility that you need.

Return Potential and Taxation of Short Term Mutual Funds

Depending on the assets that you have selected the best debt mutual funds for the short term will yield returns ranging from 7% to 8% as per your portfolio. he post-tax returns for short-term mutual funds are also attractive. In terms of taxation, short term debt mutual funds can be categorized into dividend or growth options. Under the growth option, the investment will be treated at par with the bank’s fixed deposits. The total gains made from short duration funds will be considered as a part of the investor’s income and taxed accordingly. On the other hand, under the dividend option, the income earned from mutual funds investment for the short term is exempted from taxation.

Factors to Consider Before Investing in Short Term Mutual Funds

Expense Ratio: Since these funds are volatile in nature and need active management, there may be some amount of cost involved in managing your funds. This fee charged by fund managers as a ratio of the returns and gains made on your investment is known as the expense ratio. Knowing the expense ratio will help you understand the extra charges that you will have to pay.
Risk Tolerance: If you are looking for a low risk, low to average yield, then investing in short term mutual funds would be ideal for you. Since fund managers normally pick investments with high credit ratings, there is little to no risk involved in this form of investment.
Tax Implications: When compared to other investment options, short term mutual funds are much more tax efficient. The taxation on short duration funds, if the investment is made before March 31st 2023, is subject to indexation if held for over three years and has been discussed earlier.
Investment Horizon: They are highly liquid as your capital is highly accessible. While the average duration for the best short term investments ranges from six months to three years, you may also invest in short duration funds for longer durations. Exit Load

If you happen to redeem your funds before the completion of a few days or months (depending on your investment), you may be charged an exit load. Thus, before you exit your investment, check out the exit load that you may be charged.

Conclusion

The minimum amount to invest in mutual funds in India in the case of short duration funds is Rs 1000 for a 12-month SIP. Hence, if you have some idle cash lying around that you would wish to gain from, then you may opt to invest it in such funds. Put your money in the best short term funds for one to three years and earn attractive returns.

Short term funds are low risk, average yield funds that are invested for short durations. Thus, you can not only gain returns on your investment, save on tax, but also have liquid money readily available. Investing in these funds will diversify your portfolio and balance out your investment in equity. At the same time, it will also help you reach your financial goals.