What is Short Duration Mutual Fund & How to Invest | Motilal Oswal

What is Short Duration Mutual Fund & How to Invest

If you're searching for a mutual fund that can balance potential returns and reduce interest rate risk, then a short-duration mutual fund could be a good choice. Explore the mutual fund Calculator for calculating your returns.

What Are Short-Duration Mutual Funds?

Short-duration mutual funds are a type of debt fund that mainly invests in fixed-income securities with shorter maturity periods. Usually, these funds have a portfolio of bonds and other debt instruments with a maturity duration of one to three years. These funds aim to provide investors with a steady income stream while decreasing risk.

Shorter durations can help reduce the impact of interest rate fluctuations. Hence, it makes them less vulnerable to changes in market rates when compared to debt funds with longer terms.

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What Are The Benefits Of Short-Duration Mutual Funds?

Here are a few benefits of investing in short-duration mutual funds:

1. Low Risk:

As previously stated, short-duration funds invest in securities that have shorter maturity periods, making them a low-risk investment option. Investing in them is considered relatively safe because they are less susceptible to fluctuations in interest rates.

2. Get Stable Returns

Most short-term funds are classified as debt funds based on how long they are held. If you're looking for a reliable investment option, you might want to consider debt funds. These funds invest your money in fixed-income securities like Corporate Bonds, Government Securities, Treasury Bills, and Money Market Instruments, among others.

Hence, Short-duration debt mutual funds have the potential to produce a fixed rate of return for a specific maturity date. In addition, India's top short-term funds are typically unaffected by fluctuations in the capital market.

3. Diversifying Your Portfolio

Investing in short-term debt funds can be beneficial for diversifying and balancing your investment portfolio. Short-duration funds are a great option for those who don't want to invest for a long time. 

4. Helps To Meet Your Financial Goals

Short-duration mutual funds can be a great option if you're looking to invest your fund for a short period, whether shorter than twelve months or up to three years. They offer good returns and are well-suited for short-term investment plans. 

What Are The Risks Associated With Short-Duration Mutual Funds?

  • Liquidity Risk: This risk is the likelihood that the fund manager cannot transfer the underlying assets without experiencing a substantial loss.
  • Credit Risk: Credit risk means the possibility that owners of underlying assets will not honour their commitment to pay the principal and interest when the asset in question matures.
  • Interest Rate Risk: Interest rate risk is the possibility that the market price of these securities will decline due to an increase in interest rates.

What Are The Things To Consider When Investing In Short-Duration Mutual Funds? 

  1. Expense Ratio: Since these investments are volatile and require active management, there may be a cost associated with their management. Understanding the expense ratio will assist you in understanding the additional fees you incur.
  2. Risk Tolerance: Investing in short-term mutual funds could be best for you if you seek a low-risk, low-to-average return. Since fund managers typically choose investments with high credit ratings, this investment involves minimal risk.
  3. Investment Horizon: Although the average duration of the finest short-term investments is between six months and three years, you may also invest in short-duration funds for extended durations. 
  4. Exit Load: If you withdraw your funds within a few days or months, you may incur an exit load. Therefore, before redeeming your investment, you must consider the possible exit load.


So this is all about Short-duration mutual funds. Short-duration funds may prove an ideal choice for investments for those seeking a safe investment with a possibility of regular income. If you wish to invest in these funds, you can start easily with Motilal Oswal. Open a DEMAT Account, and you are ready to go! 

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