Best Short Term Debt Funds 2023

Short-term debt funds refer to mutual funds suitable for low-risk investors with a low to moderate horizon of one to three years. Stable returns and modest risk accompany these funds. These funds can be compared to fixed deposits due to similar characteristics.

A short-term debt fund provides tax benefits if held for over three years. This makes them beneficial over traditional fixed deposits. 

Short-term debt funds do not attract penalties on their redemption before maturity unless the redemption is before the predetermined period. On the other hand, despite being high on liquidity, FDs attract a penalty of up to 1% if redeemed before their maturity date.

Best Short Term Debt Funds to Invest in 2023

Factors To Consider Before Investing In Short-Term Debt Funds

1) Expense Ratio

The expense ratio is the fee the mutual fund charges on every unit of the scheme. It helps calculate the Net Asset Value (NAV); hence, investors need to look at this number while investing in short-term debt funds.

2) Yield To Maturity

The yield to maturity is calculated by dividing the annualized interest rate by the number of days in a year. This helps investors calculate how much money they will earn from their investments over time.

3) Risk Tolerance

Investors need to choose a low-risk fund because if you want to grow your wealth, you need to invest in low-risk assets like gold and commodities that do not give high returns but are safe investments. 

Some investors prefer higher risk because they are more confident in making money from investing in short-term debt funds in India. On the other hand, others prefer lower risk because they believe they can never lose money if they invest wisely enough.

4) Interest Rates

Short-term debt funds are one of the most popular investment options in India. This is because they provide investors with a high return with low risk. However, the interest rate will vary depending on the fund. The higher the interest rate, the higher will be the return. 

5) Investment Goals And Horizon

Investment goals can vary widely, but it is essential to understand how long you wish to invest before making your decision. Then, choose a fund that offers an appropriate investment horizon for your needs so that you do not end up with too much money tied up in one particular scheme or company.

Top Short Term Debt Funds: Performance Overview

Following is an overview of the top performing short term debt funds-

1) UTI Short Term Income Fund

UTI Short-term Income Regular Plan Growth is a Debt Mutual Fund Scheme launched by UTI Mutual Fund. This scheme was made available to investors on 14 Nov 2002.

The scheme seeks to generate reasonable income with low risk and a high level of liquidity from a portfolio of debt & money market instruments.

2) HDFC Short Term Debt Fund

HDFC Short Term Debt Fund Direct Plan-Growth is a Debt Mutual Fund Scheme launched by HDFC Mutual Fund. This scheme was made available to investors on 10 Dec 1999.

The scheme aims to yield reasonable income with low risk and a high level of liquidity, often considered one of the best short term debt funds.

3) ICICI Prudential Short Term Fund

ICICI Prudential Short Term Fund Direct Plan-Growth is a Debt Mutual Fund Scheme launched by ICICI Prudential Mutual Fund. This scheme was made available to investors on 12 Oct 1993.

The scheme seeks to generate income through investments in various debt and money market instruments while maintaining the optimum balance of yield, safety, and liquidity.

4) BNP Paribas Short Term Fund

Baroda BNP Paribas Short Duration Direct Fund Growth is a Debt Mutual Fund Scheme launched by Baroda Mutual Fund. This scheme was made available to investors on 24 Nov 1994.

The investment objective of the Scheme is to generate income from a portfolio constituted of short-term debt and money market securities.

5) Aditya Birla Sun Life Short Term Opportunities Fund

Aditya Birla Sun Life Short Term Direct Fund Growth is a Debt Mutual Fund Scheme launched by Aditya Birla Sun Life Mutual Fund. This scheme was made available to investors on 23 Dec 1994.

The scheme seeks to generate income and capital appreciation by investing 100% of the corpus in a diversified debt and money market securities portfolio.

Conclusion

A short-term debt fund is an investment vehicle where a fund manager invests in debt and instruments offered by companies, banks, and financial institutions to generate regular income and capital appreciation.

Debt funds provide a great way to generate steady income while simultaneously offering the possibility of growth in capital over the long term.

Debt mutual funds can meet the needs of investors for short-term liquidity as well as provide the potential for capital appreciation through interest rate movements.

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Research Analyst - Bavadharini KS