Question 1

What are short term funds?

Accepted Answer

Short term funds invest in Debt & Money Market instruments such that the duration of the portfolio is between 1- 3 years.

Question 2

How to invest in short term funds online?

Accepted Answer

You can register on the INDmoney app and complete onboarding in a paperless and hassle free manner. You can select a short term fund from our catalogue and invest.

Question 3

How are short term funds taxed?

Accepted Answer

Investors are taxed for dividend income and capital gains they earn on the short term fund. Long term capital gains (LTCG) on liquid funds are taxed at 20%. Indexation benefit is available on LTCG. Short term capital gains (STCG) are taxed at the slab rate. For dividend income, investors have to pay tax as per their eligible slab rate.

Question 4

Can short term funds pay dividends

Accepted Answer

Yes, short term funds can pay dividends.

Question 5

How to choose the best short term funds to invest?

Accepted Answer

Investors should look for the following factors while choosing a short term mutual fund:  1. Returns- Funds should give consistent returns. Investors should look for the past 1 year, 2 year and 3 year returns.             2. Risk- Investors should look for the holdings of the fund and they should be highly rated.             3. Expense Ratios- Investors should look for funds with lower expense ratio.

Question 6

What are the risks involved in investing in short term funds?

Accepted Answer

Investing in short term mutual funds have the following risks:   Credit Risk- Lower rated debt securities in the fund may lead to default in interest payments.   Interest Rate Risk- Interest rate risks may lead to fluctuation in bond prices.

Question 7

How long should I remain invested in short term funds?

Accepted Answer

The ideal tenure to remain invested in short term funds is 1 - 3 years

Question 8

How much money should I invest in short term funds?

Accepted Answer

Investors can park their money in short term funds instead of FDs for 1 -3 years. They are more tax efficient than FDs if held for 3 or more years.

Question 9

What are the expected returns of short term funds?

Accepted Answer

The returns on short term funds vary from fund to fund but on average one can earn around 7-9% returns if invested for 3 years.

Question 10

Will short term funds be helpful in beating inflation?

Accepted Answer

Short term funds are seen as a  less risky asset class. However, they may beat inflation in some scenarios.

Question 11

How do short term funds work?

Accepted Answer

Short term funds invest in corporate bonds, government securities, securitized debt, derivatives, bonds issued by financial institutions, and public sector enterprises. They also invest in Treasury bills, TREPs, commercial paper, or certificates of deposits. They invest in such a way that the duration is between 1- 3 years. The duration of the portfolio of such funds is between 1 year and 3 year.

Question 12

What is the lock in period for short term mutual funds?

Accepted Answer

There is no lock in period for short term mutual funds.

Question 13

Who should invest in short term funds?

Accepted Answer

Investors who have an investment horizon of at least 1 year can invest in short term funds.

Question 14

Are short term funds better than FD?

Accepted Answer

Short term funds are more tax efficient than FDs for investors in higher slabs. In addition to that, indexation benefits are available in case of short term funds if invested for 3 or more years. Although considered as a safe asset class, these funds don't give you guaranteed returns.

Short Term Mutual Funds