Investors who are keen on investing in short-term funds have a number of options to choose from. Every fund has a unique time horizon and features that set it apart from other funds. One such fund, which you should be well versed with, is a low duration fund.
Low duration funds or ultra-short-term funds invest into fixed income securities, which are mostly liquid and have a short-term maturity period. These funds are different from a liquid fund.
The low duration fund invests in securities that have a maturity period of more than 91 days.
The biggest advantage of investing in the fund is the short-term maturity period. The risk associated with the fund is low and it generates stable returns in a short period.
The investment is safe from the interest rate risk and is ideal for a short-term investment.
Investors with a very short investment horizon can choose these funds. Low duration funds have a period longer than that of a liquid fund and generate comparatively higher returns.
It is ideal for those who want a fixed income and have a low-risk appetite. You will be able to grow your income by investing in these funds for a short duration.
As the name suggests, the low duration funds have a very short period of investment. Moreover, they carry a stable income and have a low risk associated with it.
The fund invests in low-risk securities that generate dividend and grow over a period.
We have listed down few of the best low duration funds that you can think about investing. For more details, set-up your account and talk to our financial advisor today:
You need to keep in mind that there is a capital gain tax on the fund. You are not required to pay tax on the dividend but there will be a 20% tax with indexation in case of a long-term capital gain.
The short-term capital gain will be taxed as per your regular income tax slab.
In addition, keep the investment period in mind before investing. The fund has an investment horizon of more than 91 days. If you wish to invest for a lower period, choose liquid funds.
The best way to select a fund is by comparing its performance with other duration funds. You can choose the top low duration funds and compare their performance with liquid funds and other short-term funds, as following this practice will allow you to make a wise choice.
Also, consider the expected returns and the historical performance of the fund. It is best to choose a fund that has outperformed other short-term funds.
Consider the funds that have high-quality liquid assets and have consistently performed well.
Selecting the fund also depends on your investment horizon. If you think that you might need the cash within a month or three months, you need to opt for liquid funds. If the investment horizon is fixed for one year, you can opt for short-term funds that have a tenure of one year.
Make a thorough comparison and consider your preferences before you make the final decision.
To ensure the investments you make help you toward a financially secure future, you must avoid certain investment mistakes that a lot of newcomers end up making. Mistakes such as:
Not having a financial goal in mind is probably the biggest mistake an investor makes while investing. If you are not clear about the outcome you want, you will end up taking a decision that will do more harm. Investing without creating a goal is similar to travelling without having a destination in mind.
Once an investment is made, many investors stop there and forget to keep track of their scheme performance. Reviewing your investments help you identify and weed out underperforming funds, understand the market conditions which will help you figure out the correct asset allocation in the future. Failing to review can cost you a fortune.
To read the entire list of common mistakes that you should avoid, check out 10 mistakes to avoid while investing in mutual funds.
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