5 Best Short Term MFs to Buy in 2025
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.
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.
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.
Top 5 short term MF to buy in 2025
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:
Type of Short Term Mutual Fund | Expense ratio | Min.SIP Amount | Risk | Exit Load |
Nippon India Short Term Fund Direct Growth | 0.37% | Rs. 100 | Moderate | NIL |
ICICI Prudential Ultra Short Term Fund Direct Growth | 0.39% | Rs. 1000 | Moderate | NIL |
Axis Ultra Short Term Fund Direct Growth | 0.33% | Rs. 1000 | Moderate | NIL |
HDFC Ultra Short Term Fund Direct Growth | 0.36% | Rs. 100 | Moderate | NIL |
Aditya Birla Sun Life Savings Direct Growth | 0.34% | Rs. 1000 | Moderate | NIL |
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.
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