Understanding Short Duration Funds

Every investor strives to maximize their investments by making the right decisions. The tenure or period of investment plays a crucial role in the same. Investment decisions should always be made keeping the period of investment horizon in mind to ensure high returns over the investment period. If you are planning to invest for a short-term period, say around three years, you may consider investing in short duration funds.

What is a short duration fund?

Short duration funds are the funds, which invest into debt funds/bonds that have a maturity period ranging from one to three years. They offer low returns and have low risk.

These funds are not aggressive and are not impacted by the changes in interest rate since the investment horizon is very short.

Why should you invest in these funds?

You should invest in these funds because of the low risk and generation of stable returns. If you have excess funds on hand and do not need the liquidity, you can choose to invest in the funds.

The investment period is short, which makes it ideal for parking excess funds.

Who should invest?

Short-term investors who are looking at alternatives to invest their money for one year to three years should invest in these funds. The returns generated on the fund are stable and low but they are higher than the interest rate offered to you by the bank.

This means that the investment remains safe and simultaneously generates income.

What are the features of short duration funds?

As the name suggests, these funds are of a short duration, which means the maximum investment period is of three years. Short duration funds are not impacted by the change in the interest rate, which means there is a low-risk-low return on these funds.

Things to know before investing

One of the most important things to know before making an investment in short duration fund is that the fund is only for a short period. Hence, you will not notice aggressive returns or aggressive growth of your investment.

The returns will be stable and the risk associated with the investment is low. Consider your risk appetite and the purpose of investment before making a decision.

You need to keep in mind that the returns will vary according to the type of fund you choose to invest in.

How should you select a fund?

The only difference between the duration funds is the investment period. Based on the purpose of your investment and the horizon you choose, you can pick the funds.

Short duration funds are perfect for you if you have a very short investment period in mind along with a low-risk appetite. The returns generated on the fund will also remain low but the investment is safe and secure.

In contrast, medium duration funds have a tenure ranging from four to seven years and long duration funds have a tenure exceeding seven years.

When choosing a fund to invest in, you should compare the returns generated over a period and learn about the expected returns of the fund. Choose the best fund to grow your wealth.

What are the best short duration funds?

We have listed down a few of the best short duration funds that you can think about investing. For more details, set-up your account and talk to our financial advisor today:

• HDFC Short Term Debt Fund Growth
• L&T Short Term Bond Fund Growth
• Franklin India Short Term Income Growth
• Axis Short Term Fund Growth
• Aditya Birla Sun Life Short Term Opportunities Fund Growth

Common mutual funds investment mistakes

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:

Investing in Lump Sum Money:

Investing a huge chunk of your money in one go might seem like a good idea for some investors but it is not a good method. Your ability to manage market risks and to carry out asset allocation is deeply reduced if you make a lump sum investments. Having a systematic investment plan helps you invest your money periodically and optimise your returns based on the financial goals you want to achieve.

Start Panicking:

Many investors start panicking when the markets go down and take an impulsive decision to sell off their portfolio. Instead take a step back, read about what is happening in the market, talk to other investor friends, advisors or colleagues. Don’t take any steps until you have all the necessary information and have done enough research to form an informed decision.

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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