Best Debt Mutual Funds For Conservative Investors To Meet Their Regular Income Needs
What Are Short Term Debt Funds?
These funds are open-ended debt programs that invest in securities with a maturity of between one and three years. Thus, investors with an investment horizon of a few years can park their funds in the category.
Characteristic of short-term debt funds:
1. Highly liquid, can be withdrawn with one day’s notice.
2. Yields are more or less comparable to bank term deposits.
Now we are listing some of the best short term debt funds:
1. Axis Short-Term Fund – Direct Plan:
It is a 5 star rated fund with an expense ratio of 0.3%. The fund invests over 68% in very low risk securities, while over 27% is invested in government securities. The SIP in the fund can be started for Rs. 1000 and for a lump sum investment it is necessary to distribute a minimum sum of Rs. 5000.
The fund’s benchmark is the 10-year gilt CRISIL index and the fund’s 1-year return was 7.5%.
2. ICICI Prudential Short Term Fund – Direct Fund – Growth:
It is again a 5 star rated fund with an expense ratio of 0.39%. The fund’s allocation of 95% is parked in debt securities. The SIP in the fund can be started for Rs. 1000 while the minimum flat rate investment is Rs. 5000. The risk rating is below average and the return rating is high for the fund category. Compared to its benchmark, the fund generated a 1-year return of 8.27%.
3. HDFC Short Term Debt Fund Direct Growth Plan:
It is again a 4-star rated fund with an expense ratio of 0.24%. The SIP in the fund could be done for Rs. 500 while the lump sum investment is to start at Rs. 5,000. The fund compared to the category average return of 7.63 percent has offered a one-year return of 8.17.
Taxation of short-term debt funds
1. In the case of long-term holding, ie if the debt fund is held for more than 3 years, the gains are taxed at 20 percent after providing for the indexation benefit.
2. For short-term capital gains, when units are redeemed before 3 years, the gains are added to the individual’s income and taxed according to his slab.
Dividends, if any, are added to the investors’ total income and taxed according to their tax treatment. Note dividends exceeding Rs. 5000 in a year attracts at the rate of 10 percent, which is deducted by the fund house
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