Know what are short term debt funds

Are you someone who is new to the investing world? If yes, then you would surely be looking for insights into the best options for investment. As a first-time investor, it is difficult to figure out how the market works and where you should invest. It is best to start slow and take safe bets in the beginning and, for this purpose, short term debt funds can be a great option for you. Debt funds are mutual fund schemes which invest in fixed income securities like government bonds, corporate bonds, commercial papers and certificates of deposit. These securities are considered much safer than equities, and they offer you stable returns as well. Let us take a look at some of the most frequent queries around short term debt funds and also understand the concept well before you begin your investing journey.   

What are Short Term Mutual Funds?

Your investment can be of many different types, based on your risk appetite, time horizon, return requirements and objectives. If you are someone who is keen on investing for the shorter term, which is between three to five years, then short term debt funds act as an excellent investment vehicle. These funds invest in short-term government bonds and corporate bonds, based on the underlying aspects such as the risk ratio of the fund. These schemes offer you annual returns of around 10 to 12%, which is higher than bank fixed deposits, in addition to being comparatively safe. Debt fund investments are very beneficial, especially in the short term, since they enable you to enjoy stable returns while also ensuring safety of your corpus.  

Choosing the Best Debt Funds in India

Let us consider a simple example here. For your stellar performance in 2022, your company has given you a year-end bonus of Rs. 2 lakhs. You do not need this money in the near term, as you have already budgeted for the year ahead and your salary will help you meet all your expenses. You can either park this bonus in bank FDs or opt for a short term debt fund. If you pick a short term debt scheme, your bonus will work for you and help you earn robust returns over the next three to five years. So, how should you choose the best debt fund for investing in India? There are three things you should consider –

1. Risk profile: Think about how much risk you are willing to take on, and then choose a debt fund which is aligned with your risk appetite. If you want an extremely low risk option, pick funds investing in government bonds and AAA-rated corporate bonds.
2. Investment horizon: It is best to pick a scheme which is in line with your investment tenure. If you are planning to redeem your investment in the next three years, do not opt for a five-year scheme. This will help you avoid exit loads effectively.
3. Return requirements: You need to pick short term debt funds which match your return requirements as this is the best way for you to realise your goals. However, do not be over-ambitious as the safety of your investment is as important as the returns you earn.

Pick the Best Short Term Debt Funds Online

There are many good short term debt funds in India and you can invest in them online, in a seamless manner. You can zero in on the best fund by comparing the options online and then matching the best funds with the three criteria mentioned above. Keep an eye on the historical performance of the fund house, as well as the scheme, before you take the final decision. Once you know which fund you want to invest in, all you need to do is register on the asset management company’s site, complete your KYC, and start your investment journey.

Investment is a long voyage which starts with a single step. Take the first decisive step with short term debt funds and fulfil your financial goals optimally.

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