10 Best MFs for Short Term Investment| North Loop Official Blog
North Loop Logo
North Loop
02 Nov 2020

10 Best MFs for Short Term Investment

thumbnail for 10 Best MFs for Short Term Investment
Credit: North Loop

What are short-term mutual funds?

Short-term mutual funds are debt schemes that invest in securities having a maturity period ranging from 15 to 91 days. These funds invest in high-quality securities that help in earning moderate returns at low risks. Short-term debt funds are also suitable alternatives to a savings bank account and fixed deposits as they have the potential to offer higher returns and more liquidity. (You can, however, get an industry-high interest rate of 7.50% on fixed deposits with North Loop).

Benefits of investing in short-term debt funds -

Stable and good returns - Short-term mutual funds invest in securities that have a predetermined rate of return and maturity and do not get affected by market movements. Also, since these funds invest in high-quality securities, the risk involved is low as compared to other investment options.

Balanced portfolio -Short or ultra-short term mutual funds invest in financial instruments like government securities, treasury bills, corporate bonds and money-market instruments, all of which help in balancing the portfolio as they are independent of capital market movements.

Short term financial goals -The investment horizon for a short term mutual fund varies between one to three years. Therefore, if you are a short term investor these funds can be a good option. For an investment horizon of fewer than three years, ultra-short mutual funds can generate moderate returns as compared to many other investment options. Also, if you have a long term horizon and your equity investment is nearing its goal, shifting your investments to these short term mutual funds can help in protecting your capital. All in all, these funds can be beneficial with regards to short term financial goal planning.

Start investing for free with North Loop and get personalized recommendations

Taxation on Short Term Mutual Funds -

Taxation on mutual funds depends primarily on the period of holding. Short term mutual funds that invest mainly in debt securities get considered as short-term if held for less than 36 months. If you sell these debt funds after 36 months, the returns get considered as long-term gains and taxed at the rate of 20% after indexation. Indexation plays a huge role here as it factors in inflation from the time of purchase of the funds to the sale of the units and helps in inflating the purchase price as well to bring down the quantum of capital gains. If you sell your debt funds in less than 36 months, they get subjected to short-term capital gain tax (STCG). The rate for short-term capital gain tax depends on the income tax slab applicable to you.

Best short-term mutual funds -

The ten best short term mutual funds you can invest in 2020 according to experts are as follows -

Fund Name   
1-year Returns   
SBI Magnum Constant Maturity Fund Regular Growth   
Aditya Birla Sun Life Banking & PSU Debt Fund   Growth Regular Plan   
HDFC Short Term Debt Growth   
ICICI Prudential Short Term Fund Growth   
Axis Short Term Growth   
Aditya Birla Sun Life Short Term Fund Regular   Plan Growth   
Kotak Bond Fund Short Term Growth   
L&T Short Term Bond Fund Growth   
ICICI Prudential Ultra Short Term Fund Growth   
DSP Short Term Fund – Regular Plan – Growth   

How to choose the best short term mutual funds?

Past performance - Even though the past performance of a fund does not guarantee future returns, it helps in making informed decisions about a fund. Those that perform well consistently against their benchmark can give an insight into the fund’s performance in the long run. To choose the best short term mutual funds, monitoring the fund’s performance within a category is also important. A fund with decent alpha returns, consistent performance and a good ranking can be a suitable choice.

AUM - For choosing the best debt funds, comparing a fund’s AUM with that of other funds in the category becomes crucial. Experts claim that funds with smaller AUM may get vulnerable to the risk of redemptions while those with larger AUM can lead to holding more cash in case of lesser market opportunities. However, it is advisable to do thorough research before choosing a fund with the optimal AUM.

Identify goals - Choosing funds that identify with personal financial goals is one of the prime factors for a successful investment. Therefore, it is necessary to get a clear understanding of your investment horizon, goals and the costs associated with it when choosing the best mutual funds.

Quality of securities - The performance of a fund largely depends on its portfolio. Therefore, before choosing the best short term mutual funds, it is imperative to analyse the portfolio well and check the kind of securities in it. Professionals in the field suggest that choosing funds having securities with a rating of AAA, AA etc. not only offer secure returns but also help in mitigating risks.

Expense Ratio - The expense ratio of a fund is the fees charged by the AMC to manage it. Since it affects the returns of the fund, it becomes necessary to consider the costs involved before making a choice.

Exit load - An exit load is a penalty charged by the fund on redeeming the investment before the specified tenure. Therefore, it is considered as a critical parameter when choosing the best short term mutual funds.

You can also embark on a paperless and easy mutual fund investing journey with North Loop. We offer a digital investment platform, personalised recommendations based on your risk profile and goals as well as the assistance of professional mutual fund advisors.

To sign up with us, click here.

Save money with

No-fee banking, investments, remittances & insurance for the global Indian

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.