What are Short term Debt funds in India? Meaning & Features
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- Updated On:28-Jan-2021
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Short Answer
Short Term Debt Mutual Funds provide a good alternative to traditional investment and income generating schemes. Often termed as highly liquid assets, short term funds are a common choice when it comes to planning your short-term investments.
Detailed Answer
Here we discuss in brief about Short term debt funds, its meaning, features and objective to invest. Investment in the capital markets always exposes your capital to the risk of volatility. So, it is not suitable for those investors who depend on their savings for livelihood.
Short Term Debt Funds: Features
Short Term Debt Mutual Funds provide an alternative to traditional Fixed Deposits and Monthly Income schemes.
- Short term debt funds can offer higher returns and low volatility.
- These are also known as income funds.
- These fund invests in Govt. and companies debt instrument and money market instrument of shorter duration of maturity of up to 3 years.
- These are highly liquid debt instruments and also help the investors to fight inflation.
How Debt Funds work?
The fund generates its return from interest it receives from bonds and capital appreciation.
The bonds are traded at regular market and bond prices are affected by Interest Rates Risk i.e bond price and interest rate moves in opposite direction, credit risk, and inflation.
For example: If the interest rate falls in the economy, new debt instruments starts getting issued at newer rates less than previous rates. Then investors start to buy the old bonds which have high rates and the price of bond increases.
What's your take on Short term debt funds in India? There are so many investing instruments, one tends to get confused. So, be careful in planning your investments.
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