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Best Short Term Debt Funds

Best Short Term Debt Funds

Best short term debt funds

We all have heard that investment is the key to long-term wealth creation but as John Maynard Keynes famously said “In the long run we all are dead”, it signifies that as it is important to plan for our long-term future, it is even more important to plan for the short-term which is near and will impact our lives on an immediate basis as compared to long-term.

What are Short-term Debt funds?

Short-term Debt funds are a safer option to invest in if you want to earn consistent returns with moderate risks. Short-term debt funds are financial instruments that give you the option to invest in debt instruments offered by companies, financial institutions, and banks for a period of one to three years.

Investing in short-term funds depends on the needs of the investor. Short-term debt funds are mutual funds with a low to moderate risk profile and are a mode to earn stable returns in the short term which is usually 1 –3 years with a scope of capital appreciation with interest rate movements in the long term.

What are the factors to consider before investing in Short-term Debt Funds?

  • Interest rates: Interest rates are a very important criterion before selecting a short-term debt fund because the returns of a debt fund depend on its interest rate. If the interest rates are lower, then the returns on the debt funds will also be lower, and vice versa.
  • Credit Ratings: Before investing in a short-term debt fund, you should look at its credit ratings. The better the credit rating of a debt fund, the better its reliability is, and the more confidence it instills in an investor.
  • Average Maturity: Average maturity means that any short-term debt fund invests in 100-150 instruments and the maturity of all these instruments will be different. So, if you take the average maturity of all these instruments then the maturity, we will get is the average maturity of that fund.
  • Expense Ratio: It is the fee that a mutual fund charges for a single unit of a debt fund and it helps in calculating the NAV of a fund. It is an important factor to look into before considering a debt fund as it affects your profits directly.
  • Yield to maturity: YTM depicts the annual return one makes on the bond and eventually till maturity. Calculation of a YTM is a complicated process.YTM is a calculated return that is generated by reinvestment of all the coupon payments received till maturity and discounted by the prevailing interest rate.
  • Modified Duration: The modified duration of any bond means the change in the price of a bond with a 1% change in its interest rate. The interest rate and price movement of a bond is inversely proportional I.e. when the interest rate increases the bond prices go down, and when the interest rate comes down then the bond prices go up.

Best 5 Short-term Debt Funds in 2023

Here is the list of the best 5 short-term debt funds in India in 2023:

Scheme Name Average Maturity(years) Modified Returns(years) Yield to Maturity(%) Expense Ratio
Aditya Birla Sun Life Short-term Fund 2.45 1.8 7.74 0.39
Axis Short-term 2.3 1.72 7.66 0.3
ICICI Prudential Short Term Fund 5.42 1.7 7.82 0.37
Nippon India Short Term Fund 2.64 2.17 7.69 0.35
UTI Short Term Income Fund 1.48 1.23 7.6 0.33
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