Three Best Short Duration Funds to Invest in


  • Looking for short-term investment of 1-2 years? Short duration funds could be best for you!
  • Read this post that talks about these funds

Short duration or short-term funds, as they are called, are a category of debt funds that invest in money market instruments such as government securities and corporate bonds. As the name suggests, the duration of these securities is short, it is in the range of 1 to 3 years. Simply put duration is the period in which the bond or security will mature and give the entire interest back to the lender. These are different from liquid and ultra-short-term funds that carry a duration of less than 91 days. Since short duration funds carry a higher duration as compared to liquid or ultra-short-term funds, both risk and return are higher.

Top Mutual Funds to Invest in Now

The returns from short duration funds are determined by the interest rates in the economy. All the bonds or securities in the short duration fund are marked to market (MTM) and their price movement increases or decreases basis the movement in interest rates. Interest rates and bond prices have an inverse relationship, when interest rates are decreasing, bond prices increase and vice-versa. Therefore, in an economic environment where interest rates are coming down, short term duration funds tend to deliver good returns. A case in point is the last year where RBI has aggressively cut rates and short-term funds have delivered double-digit returns. These are superb returns for a debt fund with relatively lesser risk. Let us look at the best funds in this category.

Best Short Duration Funds

HDFC Short Term Debt Fund

This fund is offered by HDFC Mutual fund and was launched on 25th June 2010. This fund has a moderately low risk and has been a consistent performer over the years. The fund has an AUM of INR 10,324 crores, so one can expect returns higher than bank fixed deposits by investing in this fund. It is rated five stars by Value Research and is our top recommendation among short term duration funds.

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IDFC Bond Short Term

This fund is offered by IDFC Mutual fund and was launched on 14th Dec 2000. This is one of the oldest short-term funds with a stellar track record. The fund has an AUM of INR 12,511 crores and has a moderately low risk. It has been a consistent performer and is rated five stars by Value Research.

Kotak Bond Short Term

This fund is offered by Kotak Mutual fund and was launched on 2nd May 2002. The benchmark is Nifty Short Duration and is rated Four Stars by Value Research. The fund has an AUM of INR 10,534 crores and has a moderately low risk. It has been a good performer among the short duration funds.

Returns of These Funds

Let us see the returns (in % terms) these funds have delivered:

Fund NameLast 6 monthsLast 1 yearLast 3 years
HDFC Short term5.2810.408.19
IDFC Bond5.2510.347.94
Kotak Bond5.2510.067.62

As we can see returns are almost similar and all these funds have done exceedingly well.


Short duration funds are the right category of funds for someone looking to invest for the next 1-2 years and have a low-risk appetite. Sharp cut in interest rates has led to good returns being delivered by these funds. Looking at the current economic situation, interest rates can fall further which would aid these funds to continue their good performance. We recommend you invest in these funds as a major holding in the debt portion of your portfolio.

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