All About Short Duration Funds

Short duration funds, also referred to as low duration funds, invest in money market securities as well as debt for a short period of time. This period is typically between 1 year and 3 years. Short-duration funds work in a very simple manner. Let us dive into how short-duration funds work. First, it is essential to understand the duration of short-duration funds. The duration essentially represents the interest rate risk. The longer the duration, the higher is the risk and volatility. So, low-duration funds have the advantage of lesser volatility and lesser risk. Low-duration funds typically invest in money market securities such as commercial paper, TREPs, certificates of deposits, or treasury bills. They actively manage the duration to make the most out of fluctuating interest rates. The funds that have a higher exposure to long-term securities are in a position to have more capital gains.

Features of Short Duration Funds

The short-duration funds are great investment vehicles for a particular function in a volatile stock market. Along with stability, short-duration funds have several other features. Let us have a look at some of the important features of short-duration funds.

Increased Growth

By investing in short-duration funds, investors can gain 7-9% of annual returns. The really good short duration funds have grown at 9% with a continuously increasing trend.

Quick Exit

Short-duration funds are a great place to start investing in the Indian economy. You can also opt-out of the scheme within 3 years without any liability.

Fulfill Financial Goals

Many investors have several financial goals. These can be met by investing in short-duration funds. The duration of these funds is an advantage and the plans are effective thereby providing great returns in a short span of time.

Advantages of Short Duration Funds

There are plenty of advantages when it comes to short-duration funds. These multitudes of advantages are what makes them a popular choice among several investors. Let us have a look at some of the main advantages of short-duration funds.

Lesser Risk

As short-duration funds are invested for a short duration of time, the risk that is carried along is decreased thereby reducing the overall risk ratio for the investor.

Potentially High Returns

While reducing the overall risk, short-duration funds also provide potentially high returns as promised.

Increased Growth

The YoY returns continue to rise evidently. This acts as a natural growth stimulator to short-duration funds. Therefore, the overall growth of short-duration funds continues to increase.

Impact on Nation’s Economy

With short-duration funds, you get to invest directly in the nation’s economy.


Compared to bank deposits, short-duration funds are more tax-efficient.  The perks of index funds contribute to the tax advantage in this case.

Top 5 Short Duration Funds

Investing in short-duration funds can be rewarding to several investors. However, it is crucial to make the right choice about which short-duration funds to invest in. Let us have a look at the top 5 short-duration funds that you can invest in Please note that the information below is for educational purposes only

Aditya Birla Sun Life Low Duration FundDirect Growth

This short-duration fund is one of the most remarkable ones as it has consistently outperformed other funds in the same strata. You would need a minimum of ₹100 to invest in this fund. It has an AUM of ₹19,096 Crores and an annual return of 5.4% in the last 1 year. Over the past 3 years, this short duration fund has had an annual return of 8.02%.

Kotak Low Duration FundDirect Growth

The minimum investment you would require to invest in this low-duration fund is ₹5,000. This fund has an AUM of ₹13,850 Crores. The Kotak low duration fund direct growth has had 7.98% in annual returns over the past 3 years. In the last 1 year, it has had an annual return of 5.3%. You can also opt for a SIP scheme with a minimum investment of ₹1,000.

HDFC Low Duration FundDirect Plan Growth

This short-duration fund has an AUM of ₹26,073 Crores with an annual return of 5.8% over the last 1 year. This fund provided an annual return of 7.78% over the last 3 years and has consistently hit the benchmark. You can start investing in this short-duration fund with a minimum investment of Rs 5,000.  If you would like to invest a lesser amount, you can opt for the SIP scheme and start with a minimum investment of ₹1,000.

ICICI Prudential Savings Fund Direct Plan Growth

You can start investing in this low-duration fund with a minimum investment of ₹100. This fund has provided an annual return of 7.73% over the last 3 years. Over the past year, it provided an annual return of 5.3%.

Axis Treasury Advantage Direct Fund Growth

With this low-duration fund, you will be investing in one of the best short-duration funds in India. This fund has had 7.58% returns over the last 3 years and 4.7% annual returns in the last year. It has an AUM of ₹10.389 Crores. You would need a minimum lump sum investment of ₹5,000. You can also pay through SIP with a minimum investment of ₹1,000.

Should I Invest in Short Duration Funds?

The number of investors investing in short-duration funds has grown exponentially. However, it is important to understand whether short-duration funds are the right fit for you or not. You can consider investing in short duration funds if:

  • You are looking for great financing options within a period of 1 year to 3 years.
  • You want to recoup to the greatest extent within a short period of time.
  • You do not have too much idea about investing in the market economy but would like to gain some insights.

In a Nutshell

Short-duration funds have a plethora of benefits such as assured returns, moderate risk, and tax benefits. Investing in these low-duration funds can be rewarding. However, ensure that you invest in good funds to maximize your returns and reduce the risk percentage.