|Fund||1-year Return||3-year Return|
|Franklin India Ultra-Short Bond Fund – Super Institutional Plan*||9.87%||8.96%|
|ICICI Prudential Savings Plan||8.78%||7.92%|
|Reliance Liquid Fund – Treasury Plan||7.59%||7.20%|
|ICICI Prudential Liquid Plan||7.45%||7.12%|
Data as on August 7, 2019, Source: Value Research
*Fund is open to all investors – individuals and institutions. However minimum investment is Rs 10,000
A period of less than 3 years is considered as a short term time horizon for mutual fund investors. A 3-5 year investment period qualifies as medium term and more than 5 years qualifies as long term. In the following sections, we will discuss four leading short-term mutual fund investments suitable for investors of various categories.
Franklin India Ultra Short Bond Fund – Super Institutional Plan
Category: Debt (Ultra Short Duration)
AUM: Rs. 19,569 crore (as on June 30, 2019)
Date of Inception: December 18, 2007
Classified as an ultra short term fund, Franklin India Ultra Short Bond Fund – Super Institutional Plan is the best short term mutual fund which features the stated objective of generating income for investors while ensuring high levels of liquidity.
This debt scheme aims to achieve its stated objective through a judicious mix of debt mutual funds and money market investment funds. Historically, this fund has maintained a medium level of credit quality in its portfolio ranging from high-quality AAA rated bonds to the relatively lower quality bonds rated AA- and lower. The fund has currently allocated about 40% of its assets in AA rates debt instruments and another 33% in A and below rated instruments.
Having held some relatively low-quality bonds of rating level of A+, A1+, AA- has helped the scheme benefit from the higher coupon rates offered by those bonds. However, the fund does have considerable assets invested in bonds rated AAA, which ensures overall stability of the scheme’s portfolio.
ICICI Prudential Savings Fund
Category: Debt (Low Duration)
AUM: Rs. 18,724 crore (as on June 30, 2019)
Date of Inception: September 27, 2002
The ICICI Prudential Flexible Income Plan is an ultra short term mutual fund which aims to generate income for investors by investing in the money market as well as debt instruments of varying maturities. The income generation objective of this scheme is maintained in conjunction with providing a balance between liquidity, safety, and yield of the overall portfolio.
This scheme’s investments have historically featured mainly high-quality government securities as well as bonds rated AA and above. The fund holds about 50% of its investment in A1+ rated instruments. However, 30% allocation to the AAA rated instruments makes the portfolio sturdy in the market correction phase.
The average maturity of all debt and money market instruments held by the fund has been just less than 1 year, which is in line with the scheme’s category average.
Reliance Liquid Fund – Treasury Plan
Category: Debt (Liquid)
AUM: Rs. 25,565 crore (as on June 30, 2019)
Date of Inception: December 09, 2003
Reliance Liquid Fund – Treasury Plan is among the most popular liquid debt funds currently available in India and it is managed by Reliance Mutual Fund AMC. The scheme’s stated objective is to provide optimal levels of return to investors which is in line with the scheme’s high liquidity and overall low levels of risk.
The key investment options available to this scheme include money market and debt securities of various types and maturities. Historically this fund has focused on making high-quality debt and money market investments with an average maturity of around 90 days to minimize overall portfolio risk.
The short overall maturity of the scheme has contributed to its low-interest rate sensitivity feature, which results from the fact that the fund would hold most of its investments till maturity instead of trading those securities on the bond or money market. The fund has invested about 95% of its assets in A1+ rated debt instruments.
ICICI Prudential Liquid Plan
Category: Debt (Liquid)
AUM: Rs. 59,795 crore (as on June 30, 2019)
Date of Inception: November 17, 2005
Liquid funds by design are expected to feature very low levels of risk along with commensurate returns that outstrip returns offered by savings accounts. ICICI Prudential Liquid Plan is ideal for short term parking of excess funds as the scheme aims to provide low levels of risk and high levels of liquidity simultaneously to investors from all walks of life.
As per its stated objective, an estimated 80% of the fund’s capital would be invested in money market instruments while the balance portion of the corpus would be placed in debt instruments of high quality.
As with the category average, the average maturity of investments made by the fund is around 90 days which ensures that the scheme’s portfolio has low levels of interest rate sensitivity.
As a result of the short residual maturity of its investments, the fund holds a majority of its investments till maturity instead of engaging in trades on the bond and money markets. Interestingly, the fund has parked about 90% of its assets in A1+ rated debt instruments.
If you are looking for investing in mutual funds for a short term perspective, it is better to avoid investing in equity funds. This is mainly because equity schemes are prone to significant volatility in the short term. The volatility induced market risk in equity funds can be rationalized only by staying invested for the long term.
Moreover, equity mutual fund investments, especially mid and small cap stocks can be relatively illiquid in nature due to a possible market correction, which also makes them a poor choice for short term investments.
The suggested debt investment options, on the other hand, are relatively much safer than equity funds as market risk is very low. Further, suggested debt funds feature a short average maturity for the instruments they are invested in. This ensures potentially lower levels of overall risk to the principal amount invested as well as higher levels of liquidity for the scheme’s investors.