Short duration mutual funds are open-ended mutual fund schemes which invest in debt and money market instruments including dynamic bonds, corporate bonds, government bonds, etc. with a Macaulay duration of about one to three years. The best short-term funds aim to generate stable and steady returns with comparatively lower risk.
The best performing short-term mutual funds comprise a diversified portfolio with a combination of both debt and money market instruments. These funds also maintain the liquidity of the portfolio with a low-risk strategy aimed at stable returns. The best short-term mutual funds can generate high accrual income by investing in bonds. These short duration funds also generate capital appreciation by managing the portfolio on interest rate movements.
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The funds serve the investment objective of generating comparatively stable returns with lower risks. Unlike, longer term debt mutual funds, these schemes are not very sensitive to the interest rate changes and thus, their Net Asset Value does not fluctuate a lot resulting in a lower risk for the investor.
The best short-duration funds adjust their portfolios to play out the shape of the yield curve of different issuer classes. The investment in bonds and fixed income securities enables risk-averse investors to generate stable returns with limited risk. The funds provide better risk-adjusted returns through managing credit risk and interest rate in the portfolio.
Short term mutual funds receive the same tax treatment as the debt funds. So, the capital gains you earn can be either long-term or short term depending on the holding period of the investment. Funds that are held for a period of less than three years will attract a short-term capital gain tax which will be as per the tax bracket of the investor. However, if the funds are held for a period of more than three years, a long-term capital gain tax of 20% with indexation will be levied.
Short duration mutual fund investments are ideal for risk-averse investors who want to earn stable returns in a short period of time. Predominantly, investors seeking stable returns with controlled liquidity through the debt and money market instruments can invest in these mutual funds. Best performing short duration funds can be suitable for investors seeking a comparatively, less risky investment opportunity.
Investors with an investment horizon of one to three years can look to invest in these funds. Savvy investors seeking diversification of their portfolio and planning to reduce their exposure to equities during a bear market this year, can invest in best short-term mutual funds of 2019. These funds are actively managed and have the potential to generate good returns for investors seeking fixed returns.
The best short duration mutual funds provide stable returns that are better than other investment instruments such as fixed deposits. Some of the best short-term funds are highly liquid, and investors may not face any problem in converting them to cash. These funds can also serve as a source of emergency funds given the high liquidity. The short-term funds can be used as an investment instrument for surplus funds.
Another great benefit of these funds is the lower risk. Unlike the long-term mutual funds, these funds are immune to interest rate changes and fluctuations in the NAV and prices. So, even if RBI were to cuts down the interest rates, it would not have any major impact on these investment schemes. The short-term mutual funds are also less sensitive to inflation as compared to long-term funds.
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