Best Mutual Funds for Short Term Investment

Updated on May 15, 2024 , 8872 views

Nowadays, many investors are planning to diversify their Portfolio by adding Mutual Fund schemes that cater to short and long tenure. But, where to invest? is the major confusion for most investors. Therefore, we have come up best mutual funds for short term investments. There are many Mutual Fund schemes that aim for short-term goals. But, before we move ahead, let’s understand about short-term plan and how can it benefit in a number of ways!

What Exactly is a Short Term Investing?

Short-term Investing usually refers to the investment that is made for a shorter duration, i.e., periods less than three years. You can strategically plan your short-term goals and fulfill by investing in the best short term Mutual Funds. Short-term goals like saving for a vacation, bike/car, a short course, gadget, electronic devices, purchase of ornaments, down-payments, as such can be easily targeted by these funds. Some investors simply invest to earn short-term gains, as some Debt fund offer better returns than Bank FDs.

Ideally, debt funds (also known as bond funds) are the most suited for short-term investments, and equities for long-term investing. Most bond funds like Liquid Funds, ultra-short term funds, short-term funds, Dynamic Bond Funds are ideal for short-term investments. Long-term bond funds are avoided for short-term plans as they are sensitive to interest rate changes.

Below are the best short term Mutual Funds that you can consider investing your money for short term.

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Best Mutual Funds for Short Term Investment

Liquid Funds

Liquid funds are a type of debt funds that invest your money in liquid assets for a short period of time, which typically ranges from a couple of days to a few weeks. These funds are highly liquid in nature, that means, one can quickly convert invested funds into cash. Liquid funds offer better returns than savings bank account. Where you typically earn an interest of about 4-6% p.a., liquid funds offer interest rates ranging from 7-8% p.a. Here are the Best Liquid Funds that you could invest to earn optimal returns in a shorter duration.

Fund	NAV	Net Assets (Cr)	3 MO (%)	6 MO (%)	1 YR (%)	3 YR (%)	2023 (%)	Debt Yield (YTM)	Mod. Duration	Eff. Maturity
BOI AXA Liquid Fund Growth	₹2,780.78 ↑ 0.54	₹1,322	1.8	3.7	7.3	5.6	7	7.4%	1M 13D	1M 13D
Axis Liquid Fund Growth	₹2,689.28 ↑ 0.56	₹22,169	1.9	3.7	7.3	5.6	7.1	7.41%	1M 13D	1M 14D
Canara Robeco Liquid Growth	₹2,908.53 ↑ 0.57	₹2,211	1.8	3.7	7.3	5.6	7	7.63%	2M 1D	2M 7D
Mahindra Liquid Fund Growth	₹1,572.48 ↑ 0.30	₹820	1.8	3.7	7.3	5.6	7.1	7.39%	1M 2D	1M 4D
Invesco India Liquid Fund Growth	₹3,320.19 ↑ 0.67	₹8,130	1.8	3.7	7.2	5.6	7	7.39%	1M 15D	1M 15D
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 18 May 24

Ultra Short Term Funds

Ultra Short Term fund invest in debt instruments having residual maturities of more than 91 days and typically less than 1 year. These funds are highly suitable for investors who are willing to marginally increase the risk of investment in order to earn good returns. Also, these funds generally offer higher returns compared to liquid funds. Investors can invest in these following Best Ultra Short term funds for up to a year and achieve short-term goals.

Fund	NAV	Net Assets (Cr)	3 MO (%)	6 MO (%)	1 YR (%)	3 YR (%)	2023 (%)	Debt Yield (YTM)	Mod. Duration	Eff. Maturity
Franklin India Ultra Short Bond Fund - Super Institutional Plan Growth	₹34.9131 ↑ 0.04	₹297	1.3	5.9	13.7	8.8		0%		1Y 15D
Aditya Birla Sun Life Savings Fund Growth	₹503.528 ↑ 0.12	₹10,748	2	3.8	7.4	5.8	7.2	7.95%	5M 12D	6M 4D
ICICI Prudential Ultra Short Term Fund Growth	₹25.5463 ↑ 0.00	₹12,180	1.9	3.7	7.2	5.6	6.9	8.02%	4M 24D	5M 8D
SBI Magnum Ultra Short Duration Fund Growth	₹5,511.26 ↑ 1.05	₹9,018	1.9	3.6	7.1	5.5	7	7.68%	4M 28D	5M 8D
Invesco India Ultra Short Term Fund Growth	₹2,491.06 ↑ 0.43	₹614	2	3.8	7.1	5.2	6.6	7.74%	5M 12D	5M 24D
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 7 Aug 22

Low Duration Funds

The scheme will invest in debt and money market securities with a Macaulay duration between six to 12 months. Low duration funds have a higher maturity duration than liquid and ultra short term funds. Risk-averse investors can invest in this scheme for a short period and earn better returns than that bank Savings Account. These funds generally offer steady and stable returns.

Fund	NAV	Net Assets (Cr)	3 MO (%)	6 MO (%)	1 YR (%)	3 YR (%)	2023 (%)	Debt Yield (YTM)	Mod. Duration	Eff. Maturity
Sundaram Low Duration Fund Growth	₹28.8391 ↑ 0.01	₹550	1	10.2	11.8	5		4.19%	5M 18D	8M 1D
ICICI Prudential Savings Fund Growth	₹498.302 ↑ 0.12	₹16,302	2.1	3.8	7.8	5.9	7.6	8.05%	10M 24D	2Y 8M 8D
L&T Low Duration Fund Growth	₹26.0708 ↑ 0.00	₹439	2	3.7	7.3	5.3	7.1	8.02%	10M 20D	1Y 4M 27D
UTI Treasury Advantage Fund Growth	₹3,254.66 ↑ 0.51	₹2,672	1.9	3.7	7.1	7.3	7.1	7.84%	1Y 29D	1Y 2M 23D
HDFC Low Duration Fund Growth	₹53.1463 ↑ 0.01	₹14,359	1.9	3.6	7.1	5.5	7	8.07%	11M 3D	2Y 2M 25D
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 31 Dec 21

Short Term Funds or Short Duration Funds

Investors wanting to invest for up to 3 years can prefer investing in short-term funds. These funds invest in debt instruments & money Market instruments that include the certificate of deposits, government papers (G-secs) and commercial papers (CPs). This scheme is suitable for investors who are looking for Capital preservation, but also wish to invest for a longer period to earn good returns. Short term funds can benefit from the interest Accruals in the debt portfolio & from the tactical exposure to higher duration debt by the respective fund manager. Following are the best short term funds that investors can choose to invest.

Fund	NAV	Net Assets (Cr)	3 MO (%)	6 MO (%)	1 YR (%)	3 YR (%)	2023 (%)	Debt Yield (YTM)	Mod. Duration	Eff. Maturity
Sundaram Short Term Debt Fund Growth	₹36.3802 ↑ 0.01	₹362	0.8	11.4	12.8	5.3		4.52%	1Y 2M 13D	1Y 7M 3D
ICICI Prudential Short Term Fund Growth	₹54.8845 ↓ -0.01	₹16,876	1.9	3.6	7.2	5.8	7.4	8.02%	2Y 7M 2D	4Y 9M 4D
HDFC Short Term Debt Fund Growth	₹29.1366 ↓ 0.00	₹12,915	1.9	3.9	7.1	5.5	7.1	7.86%	2Y 9M 24D	4Y 29D
UTI Short Term Income Fund Growth	₹28.9909 ↓ 0.00	₹2,689	1.7	3.8	6.8	7	6.9	7.51%	2Y 5M 8D	3Y 8M 5D
Nippon India Short Term Fund Growth	₹48.0153 ↑ 0.00	₹5,524	1.8	3.7	6.7	5.2	6.8	7.75%	2Y 8M 5D	3Y 6M
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 31 Dec 21

*Above is list of best Short-term debt funds are having AUM/Net Assets above 100 Crore. Sorted on Last 1 Year Return.

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Taxation of Short Term Investment Plans

As the above Mutual Fund schemes fall under the debt category, the tax implication on debt funds is computed in the following way-

1. Short Term Capital Gains

If the holding period of a debt investment is less than 36 months, then it is classified as a short-term investment and these are taxed as per individual's tax slab.

2. Long Term Capital Gains

If the holding period of debt investment is more than 36 months, then it is classified as a long-term investment and is taxed at 20% with an indexation benefit.

Capital Gains	Investment Holding Gains	Taxation
Short Term Capital Gains	Less than 36 months	As per individual's tax slab
Long Term Capital Gains	More than 36 months	20% with indexation benefits

Disclaimer:
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.