If you are reading this, you are obviously familiar with mutual funds which are investment vehicles that aid you in the creation of wealth. Mutual funds pool the money of many investors and invest it in securities such as stocks, bonds, etc., to generate capital gains. When the investments are made over a short duration, they are known as short-term mutual funds.
Short term mutual funds make investments in fixed income securities such as commercial papers, government bonds, treasury bills, etc., to generate income. The funds have a maturity ranging between 15 days and 91 days and will vary according to the assets. Short term mutual funds are ideal for anyone with a low-risk appetite and who wish to invest for a short duration.
Investments in short term mutual funds are less risky and also less volatile. Liquid funds are the most common type of short term mutual funds and are debt schemes that invest in short-term market instruments with a maturity of up to 91 days. Another type of short term debt mutual fund (MF) is the ultra-short term funds that have a maturity of more than 3 months. Ultra-short-term funds are relatively more volatile than the liquid funds.
Taxation on short term mutual funds
Short term mutual funds are available in growth and dividend options. The growth option will attract the same tax rates as a bank fixed deposit would. The income earned from the growth option of a short term debt fund will be taken as a part of the investor’s overall income and hence will be taxed. The dividend option, on the other hand, will be exempted from tax.
Returns potential of short term mutual funds
When compared with the returns offered by a bank deposit, the returns achieved by short term mutual funds are comparatively higher. The returns can range between 8% and 9%, depending on the securities the scheme invests in. Also, considering the tax benefits, the returns generated by these schemes are better than those offered by other forms of investment.
Top 5 short term MF to buy in 2019
To help you pick the best short term mutual fund, we have listed the top 5 mutual funds that you can consider if you wish to invest over a short term horizon, below:
- Aditya Birla Sun Life Short Term Opportunities Fund - This fund is a good investment option for investors who wish to invest for a short term duration and yet achieve significant returns. The scheme invests in debt and money market securities and has delivered returns of 5.11%, 7.56%, and 8.56% over a period of 1-year, 5-years, and 10-years, respectively. The minimum investment amount for the scheme is Rs.1,000 and the scheme is managed by Mr. Maneesh Dangi and Mr. Kaustubh Gupta.
- ICICI Prudential Short Term Fund - This fund presents an opportunity for investors to achieve capital gains by investing in debt and money market securities over a short term horizon. The minimum investment amount to invest in this open-ended scheme is Rs.5,000. Returns of 4.5%, 7.4%, and 8.4% have been delivered by the fund over a 1-year, 3-years, and 5-years period respectively. The fund manager of the scheme is Mr. Manish Banthia.
- Reliance Liquid Fund - Launched on 9 December 2003, this fund strives to generate optimal returns with moderate levels of risk. The fund has a CAGR (Compound Annual Growth rate) of 7.39% since inception and is benchmarked against the Crisil Liquid Fund Index. Ms. Anju Chhajer is the fund manager of the scheme. Returns of 7.22%, 7.24%, and 7.9% have been observed by the scheme over the 1-year, 3-years, and 5-years period respectively.
- DHFL Pramerica Short Maturity Fund - This fund is suitable for investors with a short to medium term investment horizon and invests in a mix of securities rated above A1+ (short term) and securities rated AA/AAA (medium term). Investments in the scheme can be done for a minimum of Rs.5,000. The regular plan of the scheme has delivered returns of 7.80% since inception while the direct plan has witnessed returns of 8.99% over the same period.
- HDFC Medium Term Opportunities Fund - This fund has delivered returns of 8.62% over a 5-year period and was launched on 29 June 2009. Since its launch it has observed returns of 8.56%. The scheme now has been renamed as HDFC Corporate Bond Fund. Investors can invest a minimum of Rs.5,000 on this fund.
How to buy mutual funds online?
Buying mutual funds online have been made easy, convenient, and quick by BankBazaar. To invest in mutual funds through BankBazaar, please follow the below-given steps:
- Visit the official website of BankBazaar at www.bankbazaar.com.
- Click on the ‘Investments’ tab.
- Then click on the ‘Mutual Funds’ section.
- You will automatically be redirected to the ‘Choose your portfolio’ section where you will be requested to enter some basic information such as your age, net annual income, your primary bank account, etc.
- You will be then shown a list of mutual funds from which you can pick the one that suits your investment goals.
- If you wish to know more about mutual funds, you can visit the ‘Know more about MF’ section.
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