Thursday, 1 December 2016

Best Short Term Debt Mutual Funds For 2017

Posted by MyInvestmentsPub
You have been seeing many events from the last few days causing Markets in volatile. Many small investors or traders did not expect these kind of shocks in the markets and lost huge money in few days. Events like US elections, Demonetization in India, FED Rate hike predictions, Strong Dollar  etc. causes Markets to heavy volatility. Because of Demonetization, Banks are being flooded with cash and this will results in Bank Interest rate cuts. Obviously the Bank FD's interest rates would see a decrease in the coming days. The recent developments happening at the central Government will results a huge correction in Real estate and other fixed instruments like Gold, Bank FDs etc. Now, the retail small investors are totally confused to choose the right instruments to save his hard-earned money that would yield inflation-beat returns. Some conservative  readers asking me where to invest their hard-earned money in this volatile period?

Why Short Term Debt Mutual Funds are Best Investments?

Markets are in correction mode for a short duration because of the latest happenings at International and Domestic levels. Small investors are looking right investment products that would yield Inflation-beat returns for a short duration of 1 - 2 years. Going farword, Bank FDs are not any more attractive investment instruments. The recent happenings indicating that the Bank FD interest rates would soon come down considerably. Real estate and Gold also are not going to be favorite investments to small investors. In this scenario, Debt Mutual funds are best suitable investments for conservative Investors who are looking for short term duration and Inflation-beat returns. Investors can invest their lump sum amounts into these Short Term Debt Mutual funds. These Short Term Debt Mutual funds are consistently giving better returns which are completely insulated from Market shocks. The following 3 short term Debt Mutual funds are best in their category and have been giving Inflation-beat returns consistently from the last 5 years.

Who should Invest in Short Term Debt Mutual Funds?

  1. Investors who are having financial goals with the time frame of 1 - 5 years
  2. Investors who are looking better returns than Bank FDs
  3. Investors whose risk appetite is less to medium
  4. Investors who wanted to park lump sum amounts
  5. For conservative Investors who wanted to start SIP for their short term goals
  6. Investors whose financial goals are about to mature in 1 - 2 years and safe guard their yieldings before mature
  7. Investors who wanted to start Systematic Transfer Plan

Best Short Term Debt Mutual Funds to Invest in 2017:

Based on the previous 5 years performance track record, AUM of the scheme and the consistency levels of the scheme, I shortlisted the following 3 Short Term Mutual funds:

1. Birla Sun Life Short Term Fund:

Birla Sun Life Short Term Fund launched in 1997 with an aim to generate consistent incomes from a portfolio that invests 100% in Debt and Money market securities. From the last 5 years this fund is consistently giving 10+ %  returns to the investors. And, from the last 1 year, the returns are above 11%. This is one of the best fund in its category. Majority of the portfolio consists of AAA-rated Bonds, Debentures, Central Government Loans. Hence, the risk is very low and the returns are consistent. Value Research has given 4-star rating to this fund. AUM of this fund is Rs 15,861 crores as on Oct 2016. Investors who wanted to park their lumpsum amounts for a short period (1 - 3 years) can choose this fund. Minimum investments in this fund is Rs 5000 and minimum additional amount is Rs 1000.

2. Franklin India Low Duration Fund:

Franklin India Low Duration Fund is a 5-star rated short term debt fund. This fund has been giving consistent returns from the last 5 years. From the last 3 years, this fund is giving approximately 10% returns to the investors. Top holdings consists of A1+ rated CoDs and Debentures. Because of the highly rated debt securities in its portfolio, this fund has been giving consistent performance in all time frames. Total assets of this fund as on Oct 2016 is Rs 2,419 crores. You can park your lumpsum amount into this fund and from this, you can do Systematic Transfer Plan (STP) to any other fund based on your risk appetite in the same fund house. This is one of the best method to yield higher returns.

3. HDFC Short Term Fund:

This is 4-star rated short term debt fund which is launched in 2002. This is also one best consistent fund which has been giving 10+ % from the last 3 years. Total assets in this fund as on Oct 2016 is Rs.3679 crores. Top holdings consists of AA+ or A1+ Rated Debentures and CoDs. Investors who are looking regular income from their investments can go for this fund. When your investments for long term financial goals are reaching your target time-frame, then it is better to shift the amount into this fund and from this fund, you can do Systematic Withdrawal Plan (SWP) every month according to your monthly needs.

Taxation of Short Term Debt Funds:

All Debt category Mutual funds including Short Term Debt funds are taxable if redeemed within 3 years of purchase. Short term capital gain is applicable on the yieldings if sold out with in 3 years of time. If units of Short Term Mutual fund are redeemed after 3 years, then Long-Term capital gain is applicable on the earnings.Long term capital gains for debt mutual funds are taxed at 20.6% (including education cess) after indexation. Unlike Bank FDs, taxes will be applicable only on withdrawing the units and not on annual basis. This will save a lot of tax to the investors.


Short Term Debt Mutual funds are best suitable for any conservative Investors who are looking to invest for a short period of time and looking for better returns than Bank FDs with same level of safety and consistency.


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