Best Performing Short Term Mutual Funds

What are Best Short-term Mutual Funds?

Short duration funds are debt funds that invest in government bonds and corporate bonds where the duration of investment is between one to three years. The duration of investment decides the market fluctuation and interest rate risk. The longer duration more is market volatility. The interest rate risk is lower in short duration than medium and long duration investment. Short duration funds generally invest in government bonds, market securities, public sector enterprises, securitized debts. They also hold their position in treasury bills, TREP’s, commercial papers to maintain liquidity. The rate of profit in short-term funds is directly proportional to market movement and duration. Short duration funds can actively manage its tenure to comply with the changing interest rates. Investing in short term Mutual Fund meaning, engaging in long-term securities, which experience heavy losses and large capital gains. Funds invested for up to three years face light losses and low capital gains.

How are Best Short Term Mutual Funds Taxed?

Short duration funds allow you to earn higher returns in a short time if you will cover interest rate risk. Funds value can show volatility regularly. We must factor this before investing in short duration funds. Certain short duration funds are riskier and carry higher credit risk. A similar instance happened in the NBFC crisis. Investors had to encounter value erosion. Investors must understand that returns on short-duration funds are not assured and past performance does not certify future gains every time.
Investors who pool money in short duration funds earn dividends along with capital gains. From the fiscal year 2020-21, income tax will be charged on the dividend earned by the investor as per the income slot. The taxation on Short duration mutual funds depends on the holding period of the investor.

Short-term Capital Gain- If the investor holds the units of short duration funds for up to 3 years, income tax is charged on the capital gains of the investor as per his income slot.
Long Term Capital Gain- if short duration funds are sold after 3 years, the capital gains, in this case, is known as long-term capital gains. Here the investors enjoy indexation benefits. In India, long-term capital gains are taxed at a rate of 20%.

Nature of Profits / IncomeEquity Funds TaxationNon-Equity Funds Taxation
Short term capital gains15% + 4% cess = 15.60%As per the tax rate of the investor (30% + 4% cess = 31.20% for investors in the highest tax slab)
Long term capital gains10% + 4% cess = 10.40% (if the long term gain exceeds Rs 1 Lakh)20% with indexation

What is the Returns Potential of Best Short-Term Mutual funds?

Short duration debt mutual funds are less risky, tax-efficient and give moderate yield. They are good alternatives to a traditional bank savings account or fixed deposit. A systematic investment plan (SIP) is a popular scheme to invest in short duration mutual funds.
Short duration funds are more trustable than equity funds as they invest your money in government and corporate bonds.

Some of the best short term mutual funds of India are said to be immune to the market fluctuations. Unlike equity funds that require long duration, short-term debt funds are not only risk-free but also give higher capital gains.
It can help you to meet your financial goals in a brief period because they offer a high post-return than their counterparts. Short duration funds are less risky because they invest mainly in short-term securities. Short duration funds give steady returns because the market rates don’t fluctuate. Also, when the market fluctuates, the short-term funds acquire new long-term securities for capital gains.

Top 10 Short-Term Mutual Funds

Here is the list of some top-performing best short-term mutual funds 2020 in India. Investors seeking to invest for up to 3 years should invest in these schemes. Past performance never means future gains and even short duration mutual funds incur losses. So one should be aware of this fact before investment. Some of the short term funds example, performing well in India are:

S. No.Short Duration Mutual Fund Name1-year Returns
1SBI Magnum Constant Maturity Fund Regular Growth0.1056
2Aditya Birla Sun Life Banking & PSU Debt Fund Growth Regular Plan0.0916
3HDFC Short Term Debt Growth0.087
4ICICI Prudential Short Term Fund Growth0.0867
5Axis Short Term Growth0.0842
6Aditya Birla Sun Life Short Term Fund Regular Plan Growth0.084
7Kotak Bond Fund Short Term Growth0.0824
8L&T Short Term Bond Fund Growth0.0818
9ICICI Prudential Ultra Short Term Fund Growth0.0807
10DSP Short Term Fund – Regular Plan – Growth0.0789

Investing in mutual funds is a great way to start investing. You can start investing from 500 rupees only. You can invest in various instruments likes gold and debt mutual funds at the same time to prevent losses. Systematic Investment Plan (SIP) is the easiest and trusted method of investment. no prerequisite of a Demat or trading account to invest in mutual funds in India. While choosing your instrument of investment, know the fact that capital gain and dividends earned on mutual funds are taxed `at a standard rate as per the SEBI guidelines, details of which are given above. Ultra-short duration mutual funds are like Short term mutual funds for 3 months where the risk is very low with moderate profit.


Short duration mutual funds are a good option to pool your extra cash. You can attain your financial goals with systematic investment in mutual funds. They offer greater flexibility and a good return with little risk. Unlike Equity funds, short-duration mutual funds can generate a steady income for you. Short duration mutual funds are tax-efficient, which helps you to maximize your capital gains. Some short term mutual funds are riskier than others so it is important to check where the funds are getting invested.