Best Debt Mutual Funds For Conservative Investors For Meeting Their Regular Income Needs

What are short duration debt funds?

These funds are open ended debt schemes that invest in securities with a duration of between one and three years. So, investors with an investment horizon of few years, can park their funds in the category.

Feature of short duration debt funds:

1. Highly liquid, can withdraw at a notice of one day.

2. Returns are more or less comparable to bank fixed deposits.

Now here we list some of the best short duration debt funds:

1. Axis Short Term Fund- Direct Plan:

This is a 5-star rated fund with an expense ratio of 0.3 percent. The fund has over 68 percent investment in very low risk securities while over 27 percent is parked in government securities. SIP in the fund can be started for Rs. 1000 and for lump sum investment, one needs to dole out a minimum sum of Rs. 5000.

The benchmark for the fund is CRISIL10 year gilt index and 1-year return from the fund has been at 7.5 percent.

2. ICICI Prudential Short Term Fund – Direct Fund – Growth:

This is again a 5-star rated fund with expense ratio at 0.39 percent. The fund’s allocation of 95% is parked in debt securities. The SIP in the fund can be started for Rs. 1000 while minimum lump sum investment is Rs. 5000. Risk grade is below average and return grading is high for the fund category. Against its benchmark the fund has delivered a 1-year retun of 8.27%.

3. HDFC Short Term Debt Fund Direct Plan-Growth:

It is again a 4-star rated fund with expense ratio at 0.24%. SIP in the fund could be made for Rs. 500 while lump sum investment has to start at Rs. 5000. The fund against the category average return of 7.63 percent has offered a 1-year return of 8.17

Taxation of Short term debt funds

1. In case of long term holding i.e. if the debt fund is held for over 3 years then gains are taxed at 20 percent after providing for indexation benefit.

2. For short term capital gains, when the units are redeemed before 3 years then the gains are added to individual’s income and taxed as per his or her slab.

Dividend

Dividend if any are added to investors total income and taxed as per their tax slab. Note dividends over Rs. 5000 in a year attracts at the rate of 10 percent, which is deducted by the fund house

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