Short Term Mutual Funds

Short Term Mutual Funds

Are you the one – who holds all his surplus cash in a savings account but wished you earned more returns on it?

Are you the one- Want to earn returns as you earn on an FD but with no lock-in period and with the flexibility to withdraw cash at any given point?

Are you the one- Looking for a fund for short term which doesn’t have a lock-in period and in which you can earn better returns than a savings account.

You can get all the benefits from above which you may have been missing in short/debt mutual funds, how and which funds you can Invest wisely by parking your idle cash balances and even earn good returns. They are considered low-risk funds thereby providing safety of capital. As there is no specific term that describes short term mutual funds, we have listed debt funds of varying duration which you can select based on your needs –

  1. Liquid Fund
  2. Ultra Short Duration
  3. Low Duration Fund
  4. Money Market Fund
  5. Short Duration Fund

Each of these funds is an open-ended debt fund but differs in terms of return and risk component, type of securities invested in and their duration.

Through the article, you will know more about each of these funds which is essential before you begin investing in short term mutual funds. Through RankMF knowledge center, we aim to educate you about the basic of mutual funds and all the information and details about mutual fund investment you will need.

1. Liquid Fund

A. What are Liquid Funds?

Liquid funds invest your money in a low-risk portfolio of debt and money market securities with a maturity of up to 91 days. These short term mutual funds market instruments comprise of treasury bills, government securities and call money that hold the least amount of risk. If you are looking for the least risky category among debt mutual funds and something that offers marginally higher returns than savings accounts, then you can put your money in liquid funds. These funds offer a high level of liquidity and are considered a good instrument to park your surplus funds for a short term say for 1-3 months. You can exit the scheme anytime without any exit load and receive your funds the next day.

B. What are the returns earning potential?

The returns range from 7%-8%, depending on the assets available in your short term mutual funds portfolio.

C. Who should invest in Liquid funds?

If you have excess cash and you think you might need it in a few days or weeks or months, you can invest in these low-risk investment funds. You get much more flexibility in liquid funds than in fixed deposits, as it is not invested for a fixed amount of time and can be redeemed at any time without exit loads.

List of top Liquid Funds on RankMF:

Sr.No Name of Fund Minimum Investment 1 Year Returns 3 Year Returns 5 Year Returns Returns Since Inception
1 Aditya Birla Sun Life Liquid Fund – Growth 500 4.18% 6.07% 6.51% 7.31%
2 Mahindra Manulife Liquid Fund – Regular – Growth 1000 4.18% 6.07% 6.32%
3 Invesco India Liquid Fund – Growth 500 3.99% 5.93% 6.41% 7.52%
4 UTI Liquid Cash Plan – Regular – Growth 500 4.08% 6.02% 6.46% 7.15%
5 Mirae Asset Cash Management Fund – Growth Option 1000 4.09% 5.98% 6.35% 6.49%

Note: *Returns as of date 14th January 2021

2. Ultra Short Duration Fund

A. What are Ultra Short Duration Funds?

Ultra Short Duration Fund invests your money in debt and money market instruments such that the duration of the portfolio is 3 months to 6 months. These funds are a type of debt funds that are invested in Commercial Paper, Certificate of Deposits, Treasury Bills besides Commercial Papers that has an average maturity of more than 91 Days. Mostly the portfolio invests in a mix of short term debt and money market instruments with a maturity period higher than 91 days. You get slightly better returns than fixed deposits and savings accounts in Banks. This fund’s schemes are structured in a manner to take advantage of temporary fluctuations in the economy by investing in several corporate and money market instruments, therefore, it is favorable for an investor to park its surplus cash temporary basis for 3-6 months.

B. What are the returns earning potential?

These schemes generate returns in between 7-9%. If the returns are compared with the rest of the investment fund categories, then these funds generate ordinarily greater returns as compared to liquid funds schemes.

C. Who should invest in these funds?

If you wish to build an emergency corpus for meeting liquidity needs or parking surplus cash for a temporary period, you can invest in this scheme.

List of top Ultra Short Duration Funds on RankMF:

Sr.No Name of Fund Minimum Investment 1 Year Returns 3 Year Returns 5 Year Returns Returns Since Inception
1 Aditya Birla Sun Life Savings Fund – Growth 1000 6.78% 7.63% 7.85% 7.74%
2 Uti Ultra Short Term Fund – Growth Option 2500 5.08% 5.12% 6.15% 6.99%
3 Icici Prudential Ultra Short Term Fund – Growth 500 6.33% 7.42% 7.79% 8.14%
4 Axis Ultra Short Term Fund – Regular Plan Growth 500 5.05% 6.59%
5 Aditya Birla Sun Life Savings Fund – Weekly Dividend – Regular – Payout 1000 6.33% 5.96% 5.92% 6.60%

Note: *Returns as of date 15th January 2021

3. Low Duration Fund

A. What are Low Duration Funds?

Low duration fund invests your money in debt and money market securities with maturity duration between 6 to 12 months. In low duration funds, you have higher maturity duration than liquid and ultra short term mutual funds. This fund is suitable for you if you don’t want too much risk in your investment and receive stable and steady returns.

B. What are the returns earning potential?

On average, these funds deliver returns ranging from 6.5-8.5% p.a.

C. Who should invest in these funds?

It is suitable for investors who don’t want much risk in their investments and want to earn steady and stable returns on their portfolio over a short duration of 1 year. Also, they give similar liquidity and better returns as liquid and ultra-short funds.

List of top Low Duration Funds on RankMF:

Sr.No Name of Fund Minimum Investment 1 Year Returns 3 Year Returns 5 Year Returns Returns Since Inception
1 Icici Prudential Savings Fund – Growth 100 8.39% 8.17% 8.11% 8.08%
2 Nippon India Low Duration Fund – Growth Plan Growth Option 100 6.97% 7.15% 7.31% 8.00%
3 Hdfc Low Duration Fund – Retail – Regular Plan – Growth 500 8.05% 7.53% 7.50% 7.34%
4 Icici Prudential Savings Fund – Dividend Reinvestment 100 8.39% 8.17% 8.11% 7.74%
5 Icici Prudential Savings Fund – Daily Dividend Reinvestment 100 8.03% 6.50% 6.19% 6.32%

Note: *Returns as of date 15th January 2021

4. Money Market Fund

A. What are Money Market Funds?

Money market funds belong to one of the 16 schemes of debt mutual fund category. With these funds, your money is invested in high-quality money market securities like Treasury Bills (T-Bills), Repurchase Agreements (Repos), Commercial Papers and Certificate of Deposits with an average maturity of up to 1 year. Whether you are a retail investor or a corporate investor; if you are looking for a short term mutual funds investment horizon of up to 1 year and low-risk investment, you can invest in these funds to earn stable returns and high safety.

B. What are the returns earning potential?

On an average, these funds deliver returns ranging from 6.5-8.5% p.a.

C. Who should invest in Money Market Funds?

Money market funds investing can be an ideal choice, especially if you need a short term, relatively safe place to park cash.

List of top Money Market Funds on RankMF:

Sr.No Name of Fund Minimum Investment 1 Year Returns 3 Year Returns 5 Year Returns Returns Since Inception
1 Aditya Birla Sun Life Money Manager Fund – Growth-regular Plan 1000 6.47% 7.48% 7.37% 7.04%
2 Kotak Money Market Fund – Growth 1000 5.48% 7.06% 7.10% 7.31%
3 Icici Prudential Money Market Fund – Growth 100 6.08% 7.20% 7.17% 7.44%
4 Aditya Birla Sun Life Money Manager Fund – Weekly Dividend Reinvestment 1000 6.09% 5.82% 5.55% 5.90%
5 Kotak Money Market Fund – Monthly Dividend Reinvestment 1000 5.07% 5.51% 5.38% 5.72%

Note: *Returns as of date 15th January 2021

5. Short Duration Fund

A. What are Short Duration Funds?

If you want funds that generate stable returns over short term mutual funds with a low risk strategy while maintaining liquidity through a portfolio, the short duration funds is an ideal choice. It comprises of debt and money market instruments such that the average duration of the portfolio is between 1 – 3 years. You have the highest maturity duration for these funds in the short term mutual funds category. These funds being highly liquid, you can withdraw funds as and when you need.

B. What are the returns earning potential?

The returns on this fund would differ from fund to fund based on their strategies. On an average, the funds under this category have given returns ranging from 6.5-8.5% p.a. for the previous year.

C. Who should invest in Short Duration Funds?

If you are planning to invest for a few years, investing in short duration schemes would be an ideal choice. For equities, it is advisable to stay invested for a longer term as it allows you to recoup from the losses due to market fluctuations in the short run whereas long duration funds are subject to risks of interest rate movements. You will find these funds are lesser risky to interest rate changes when compared to medium and long duration funds.

List of top Short Duration Funds on RankMF:

Sr.No Name of Fund Minimum Investment 1 Year Returns 3 Year Returns 5 Year Returns Returns Since Inception
1 Aditya Birla Sun Life Short Term Fund – Growth 1000 10.59% 8.63% 8.51% 7.59%
2 Nippon India Short Term Fund-growth Plan – Growth Option 100 9.10% 8.02% 7.86% 8.05%
3 Hdfc Short Term Debt Fund – Regular Plan – Growth 500 10.65% 9.14% 8.63% 8.88%
4 Aditya Birla Sun Life Short Term Fund – Dividend Reinvestment 1000 8.74% 6.64% 6.92% 6.70%
5 Nippon India Short Term Fund Dividend Plan Dividend Reinvestment 1000 9.10% 8.02% 7.86% 8.13%

Note: *Returns as of date 15th January 2021

6. How are these short term mutual funds taxed?

All these short term mutual funds are treated as any other debt security on capital markets when it comes to taxation. If you hold these funds for less than 3 years, the returns you earn are considered as short term capital gains. The gains are added to your total income and you are taxed as per the slab rates applicable to you. If you hold the fund for more than 3 years, you get indexation benefits and the gains are taxed at 20% after indexation and 10% without indexation.

In case of bank FDs, the interest is taxable as per your tax slab (i.e. as per the marginal rate of taxation) irrespective of the tenure of the bank FD. Thus comparatively, investing in short term mutual funds is more tax efficient than bank FDs.

With this, we conclude our discussion on the topic of Best Short term Mutual Funds. For more information about investing in short term mutual funds, stock trading and useful related articles, visit RankMF.com or our investor education center.

(Note: This content is for information purpose only. Avoid trading and investing based on the information given above. Before investing in stocks or mutual funds, please conduct proper due diligence).

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