Update Date : 28-Jun-2023

Created Date : 28-Jun-2023

Reference : The Economic Times

Debt mutual fund managers and mutual fund advisors have been asking conservative investors to stick to short duration debt funds to ride the volatile phase in the money market. According to the Sebi mandate, short duration funds can invest in debt instruments with maturity between one and three years. That means these schemes are meant for short-term investments of up to three years. They are somewhat in the middle when it comes to interest rate risk. They are riskier than liquid, ultra short term, and low duration funds. However, they have a lower risk compared to medium duration and long-term funds.
 
These schemes invest in both short term bonds and very short term instruments. They invest in treasury bills, commercial papers, certificates of deposits and so on to take care of their liquidity needs. They also invest in corporate bonds, government securities, etc.
 
A rate hike is always bad news for debt mutual funds. When interest rates go up, NAV of debt funds come down. This is because of the inverse relationship between yield and prices. So it makes sense to invest in these schemes in a rising rate scenario. Short duration funds fare better than long-term funds in a rising interest rate scenario. When the rate goes up, short duration funds also get to invest in papers with higher coupon or interest rates.
 
The Reserve Bank of India paused recently after a series of rate hikes. However, there is no consensus on future rate cuts. Most money market pundits believe the RBI might adopt a wait and watch approach, as the threat of inflation is still in the horizon. Central banks around the world continue to wrestle with inflation.
 
In short, if you are looking for debt schemes to invest for one to three years without not much volatility, you may check out short duration funds. However, make sure to choose schemes that do not take extra risk for extra returns. Safety should be your prime concern when it comes to debt investments.
 
There is no change in the list. All recommended schemes have performed well. Follow our monthly updates to keep track of the performance of your schemes.
 
 
BEST SHORT DURATION FUNDS TO INVEST IN 2023
 
• HDFC Short Term Debt Fund
• ICICI Prudential Short Term Fund
• Axis Short Term Fund
 
 
METHODOLOGY:
 
ETMutualFunds.com has employed the following parameters for shortlisting the debt mutual fund schemes.
 
1. Mean rolling returns: Rolled daily for the last three years.
 
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of the randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
 
i)When H = 0.5, the series of return is said to be a geometric Brownian time series. This type of time series is difficult to forecast.
 
ii)When H <0.5, the series is said to be mean reverting.
 
iii)When H>0.5, the series is said to be persistent. The larger the value of H, the stronger the trend of the series
 
3. DOWNSIDE RISK: We have considered only the negative returns given by the mutual fund scheme for this measure.
 
X =Returns below zero
 
Y = Sum of all squares of X
 
Z = Y/number of days taken for computing the ratio
 
Downside risk = Square root of Z
 
4. OUTPERFORMANCE: Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.
 
Asset size: For debt funds, the threshold asset size is Rs 50 crore

Help Us Get Better. Rate This Article

Leave a Reply

Please rate this article first

Comments (0)

Subscribe to Our Email List
Other articles you must read
Lorem ipsum dolor sit amet, consectetur adipiscing elit.

Date : 15-jun-2020

Lorem ipsum dolor sit amet, consectetur adipiscing elit.

Date : 15-jun-2020

Lorem ipsum dolor sit amet, consectetur adipiscing elit.

Date : 15-jun-2020

Lorem ipsum dolor sit amet, consectetur adipiscing elit.

Date : 15-jun-2020

Important Links