Last Updated on March 12, 2024 by ethinos
Mutual funds are one of the most popular investment routes taken by many investors in the current digital age. They offer potential returns and there are many kinds that you can invest in depending on your individual investment style and risk profile. You should know a little bit about mutual funds before you learn about short-term mutual funds, so you know what to expect in a mutual fund investment.
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Mutual Fund Investment
In a mutual fund, many investors pool their money, and investments are done with this pooled amount of money. The fund is run and managed by a mutual fund manager, the person who invests the money in a variety of well-diversified securities with the hope of getting the most optimal returns. The assets in a mutual fund you invest in could be anything from stocks to bonds, commodities, etc.
Additional Read: How To Apply For Mutual Fund with Bajaj Broking
There are various types of funds based on the investment returns you require and the period you want to remain invested, such as long-term mutual funds and short-term mutual funds. While a mutual fund aims at giving you a well-diversified set of assets to lessen your risk, you have no control over the choice of those assets as they are selected by the fund manager.
The Best Short-term Mutual Funds
If you are an investor who wants to invest for the short term, you can choose mutual fund investment of a short-term nature. Essentially, these kinds of mutual funds are designed in a way to give investors a convenient way to invest in assets and securities (mainly stocks) without choosing individual assets. The fund manager, as in all mutual funds, selects the stocks or bonds to be invested in to give you short-term returns.
If you want to know which mutual fund is best for the short term, you should consider mutual funds that have stocks or any other assets for a period of a year or less, on average. Assets held for short periods do not have a high turnover rate as securities are not bought and sold so often in the short term. Short-term mutual fund investment allows you to minimise your transaction costs as many transactions are not made. Also, they invest in assets that are more liquid than those invested in long-term funds. With more liquidity, these assets are easily sold off should the need occur (for instance, when the market goes down).
Short-term Mutual Fund Investment
Short-term mutual fund investment may be considered by investors who wish to invest their capital and see returns within a short time, at a maximum of three years. One of the most well-known mutual fund types to choose for short-term investment is liquid funds. Essentially, liquid funds invest in debt instruments like corporate bonds, government bonds, and commercial papers. As their name suggests, they offer a great degree of liquidity, a low degree of risk, and potentially high returns relative to other investment channels of a short-term nature. Besides short-term mutual funds, you can also invest in ultra-short-term mutual funds which invest your money for a maximum of 90 days.
Short-term mutual funds that you may consider in the Indian mutual fund ecosystem may be those that invest your capital in debt instruments. The average maturity of these funds is about a year. These may not offer as high a degree of liquidity as liquid funds and they are potentially riskier. Nonetheless, they do offer slightly higher returns compared to ultra-short-term funds.
The Best Short-term Mutual Funds in India
As mentioned earlier, liquid funds could be a good option for short-term mutual fund investment. They are highly rated and are often termed “money market funds”. They are suited to investors with a low-risk profile as they invest in debt instruments primarily. These investments have a maturity of a year or lower than a year, and as they are invested for short periods, they could potentially avoid the volatility of the markets. Here are some good options in mutual funds for the short term:
Edelweiss Banking and PSU Debt Fund
Bank of India Short-term Income Fund Direct-Growth
Quant Active Fund Growth
Aditya Birla Sun Life Money Manager Fund – Direct Plan-Growth
Nippon India Short-term Fund Direct-Growth
Additional Read: How To Buy Mutual Funds Online Without A Demat Account
Final Thoughts on Short-term Mutual Funds
Short-term mutual funds can be found in the best liquid funds in India. With short investment periods and high liquidity, these funds have a lot going for them. For one thing, they have low charges as they operate for short periods when not many transactions are conducted. Besides this, they let you invest in a well-diversified group of assets that have the ability to withstand economic fluctuations and market volatility.
For investors with surplus funds who would like to invest their money in more lucrative avenues than bank deposits, short-term mutual funds, especially liquid funds, serve as a relevant investment channel. They are hassle-free to exit and very convenient to manage. For investors who have the goal of potentially quick returns in the short run, these funds may be considered after careful assessment according to your investment goals and requirements.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only.
