Debt: Short Duration

What is it?

Short-duration debt funds invest in debt & money market instruments with a weighted average maturity (Macaulay duration) between 1 to 3 years.

Objective

The objective of these funds is to provide better risk-adjusted returns compared to risk-free options in a similar duration of 1 to 3 years. These funds will provide better returns than FDs while taking lower risks compared to equity markets.

Suitability and opinion

These funds are suitable for individuals with a low risk tolerance and a short-term horizon of 1 to 3 years. We believe that these funds have a far lower risk compared to equity funds but their prices can fluctuate if the interest rates change. We feel that this category is the most suitable option for investors if they want some debt exposure in their portfolios. These funds will generate better returns compared to bank FDs but they also carry higher risk compared to bank FDs. The government's decision to remove indexation benefits has adversely affected this category.