Best Short Term Debt Funds

Short Duration Funds are open-ended debt funds that have Macaulay Duration of about 3 to 5 years. Macaulay Duration means the time period in which the investor will receive his invested money through cash flows by way of periodic interest payouts and principal repayments.

Top 5 Short Term Debt Funds to invest

Fund Name	AUM (Cr)	1-Year	3-Year	5-Year
Franklin India Short Term Income Plan – Direct Plan	5,316	-6.44%	3.49%	5.89%
Kotak Bond Short Term Plan – Direct Plan	9,928	11.09%	8.52%	8.91%
ICICI Prudential Short Term Fund – Direct Fund	13,140	10.85%	8.44%	9.07%
IDFC Bond Fund – Short Term – Direct Plan	11,459	10.70%	8.39%	8.53%
HDFC Short Term Debt Fund – Direct Plan	11,000	10.54%	8.29%	8.49%

(Source: Value Research, based on 5 Year Returns)

1. Franklin India Short Term Income Plan

The investment objective of this mutual fund scheme is to generate stable returns and is suitable for a maximum 3 year duration. It invests in Fixed Income securities and can give better returns than Fixed Deposits of the same time period. It is suitable for regular income, reasonable wealth creation and is an alternative to short term savings instruments. It has moderate risks.

Returns	1 Year (%)	3 Years (%)	5 Years (%)
Fund	-6.44	3.49	5.89
Benchmark	4.21	4.22	4.42

For instance, if you had invested Rs. 50,000 in this fund 5 years ago, then at an expected Rate of Returns (ROI) i.e. around 5.89% as on May 19, the wealth created will be Rs. 66,564.82.

2. Kotak Bond Short Term Plan

Kotak Bond Short Term Fund seeks to provide reasonable returns and high level of liquidity by investing in debt and money market instruments of different maturities so as to spread the risk across different kinds of issuers in the debt market.

Returns	1 Year (%)	3 Years (%)	5 Years (%)
Fund	11.09	8.52	8.91
Benchmark	4.21	4.22	4.42

For instance, if you had invested Rs. 50,000 in this fund 5 years ago, then at an expected Rate of Returns (ROI) i.e. around 8.91% as on May 19, the wealth created will be Rs. 76,614.12.

3. ICICI Prudential Short Term Fund

This scheme aims to generate income through investments in a range of debt and money market instruments while maintaining the optimum balance of yield, safety and liquidity. Manish Banthia is the current Fund Manager of the scheme.

Returns	1 Year (%)	3 Years (%)	5 Years (%)
Fund	10.58	8.44	9.07
Benchmark	4.21	4.22	4.42

For instance, if you had invested Rs. 50,000 in this fund 5 years ago, then at an expected Rate of Returns (ROI) i.e. around 9.07% as on May 19, the wealth created will be Rs. 77,178.54.

4. IDFC Bond Fund

Aiming for optimal returns over a short time period, this scheme invests in a diversified mix of debt and money market instruments. It invests majorly in AAA rated securities and its holdings include reliance Industries, IRFC, NTPC, National Highways Authority, etc.

Returns	1 Year (%)	3 Years (%)	5 Years (%)
Fund	10.70	8.39	8.53
Benchmark	4.21	4.22	4.42

For instance, if you had invested Rs. 50,000 in this fund 5 years ago, then at an expected Rate of Returns (ROI) i.e. around 8.53% as on May 19, the wealth created will be Rs. 75,286.83.

5. HDFC Short Term Debt Fund

Similarly as other short duration funds, it invests in debt securities to provide regular income. Its holdings include HDFC, SBI, Power Finance Corp., Tata Sons, Larsen & Toubro, etc.

Returns	1 Year (%)	3 Years (%)	5 Years (%)
Fund	10.54	8.29	8.49
Benchmark	4.21	4.22	4.42

For instance, if you had invested Rs. 50,000 in this fund 5 years ago, then at an expected Rate of Returns (ROI) i.e. around 8.49% as on May 19, the wealth created will be Rs. 75,148.19.

How to Invest in Short Duration Funds?

You can invest in mutual funds through either of the following ways-

• Offline mode of investing – If you are not confident of your knowledge, you may choose to invest through a broker. However, investing in a fund through a broker will make you eligible for investments through regular plans that offer different returns and varied expenses in investment. If you wish to invest in the fund independently, you must visit the nearest branch of the AMC of your fund. Don’t forget to carry the following documents –
  • Identity Proof (Aadhar Card)
  • Canceled cheque
  • Passport size photos (around 4-5)
  • PAN Card
  • KYC documents (for KYC verification)

• Online mode of investing – If you do not wish to add on to your expense of commissions or brokerage, you may visit online investment platforms such as Paisabazaar.com wherein you can choose from and compare more than 1,700 funds- all in one place, instead of following the long procedure of visiting the website of each AMC and then choosing from them. Here, you can select the fund in which you want to invest, look at the details and compare similar schemes as well as use SIP Calculator or Lumpsum Calculator to estimate the future value of your investment

For detailed information on how to invest in mutual funds, click here

Also know: Short Duration Funds vs Ultra Short Duration Funds vs Liquid Funds vs Fixed Income

Frequently Asked Questions (FAQs)

Q. Are Short Duration and Ultra Short Duration Funds the same?
A. No, they are not the same but similar. Both are open-ended debt funds but the difference is that of Macaulay Duration. Ultra Short Duration Funds have Macaulay Duration of 3 to 6 months. It invests in fixed income instruments with maturities up to 6 months. The Macaulay Duration of Short Term Funds is 3 to 5 years.

Q. Are Short Duration Funds safe and how are they different from other funds?
A. Short Duration Funds are safer than long/intermediate debt funds. However, all funds do carry a little risk of negative returns but the risk meter of short duration funds is low. There are several types of Debt Funds like Ultra Short, Fixed Income, etc. Read more on How to Select the right Debt Fund.