Top 10 Mutual Funds for Short-Term Investments

Short term mutual funds, also known as Liquid Funds are debt-oriented funds which invest in money market instruments, high credit-quality fixed income earnings. Here the investment period ranges from a few days to few weeks and the investment carries the least risk factors. It offers a return potential of up to 7-9%, depending on the class of assets as compared to 3-4% offered by general savings bank account. The fund is suited for those investors who are looking to invest their idle surplus money kept in the bank in order to generate higher returns. The risk of volatility associated with short-term funds is minimal provided the investments are done in high rated (AA and AAA) funds.

Things to Consider While Investing in a Short-Term Fund

One of the important aspects which investors generally check while investing in short-term funds is the risk factor. Short term funds are less risky but are not risk-free. Factors like interest rates, inflation, and credit quality affect the return factor. So, before investing, you should evaluate the following points to choose the right fund.

Average Maturity & Modified Duration

Duration in debt funds indicates the susceptibility of the fund to a percentage change in interest rate and is always measured in years.

Both, Average Maturity and Modified Duration (MD) should be in the range of 30-90 days so that it is less vulnerable to change in interest rates. Funds with higher MD are more sensitive to interest rate changes and are volatile too.


It is the anticipated rate of return if the bond is held till maturity. It is the measure of interest income generated by bonds of the portfolio. It gives a rough idea of returns that the fund will generate over the average maturity period.

Credit Quality

Credit quality is the most important aspect of the fund and has a maximum effect on returns. While evaluating a fund, you should check the portfolio rating. If the portfolio consists of funds with the highest credit rating, then it implies that the fund in less exposed to default risk, thus safeguarding your investment.

Top 10 Short-Term Funds for Investment

Following are the top 10 short-term funds for investments, you can explore to invest your idle surplus money. The funds are not in any particular order of superiority.

Axis Liquid Fund (Direct)

This fund typically carries a low-interest rate sensitivity combined with high credit quality and generates reasonable returns for its investors. Its return since inception stands at 8.15 %, making it a good bet in the fund category.

Aditya Birla Sun Life Liquid Fund (Direct)

The fund provides high liquidity and returns through investment in debt and money market instruments. The fund’s total asset stands at Rs. 54,133 crores as on Oct 31st, 2018. It has an expense ratio of 0.14% and since its inception, it has given a return of 8.19% to investors.

Edelweiss Liquid Fund (Direct)

The fund invests in money market securities and debt securities to generate reasonable returns while providing investors with low risk of volatility. The fund has provided a return of 7.98% since its inception and over 5 years, it has given returns of 7.75% maintaining a stable performance.

Essel Liquid Fund (Direct)

This scheme is the least sensitive to interest rate changes and has the highest level of credit quality. It invests in debt and money market securities and provides a stable return. The fund has generated 8.27% in return since its launch and has an expense ratio of 0.06%.

BNP Paribas Liquid Fund (Direct)

Launched on Sep 2004, the fund seeks to generate regular income through investments in debt and money market securities with a maturity of up to 91 days. The expense ratio stands at 0.03%, the lowest in the category and has generated a return of 8.11% since its inception.

HDFC Short-Term Fund (Direct)

Launched in June 2010, the fund which was initially known as HDFC Short Term Opportunities invests in debt and money market securities. Compared to other funds in the list, its risk component is a bit higher and is suitable for investors having a certain amount of risk appetite. Greater risk in the fund is factored by higher returns and since its inception, it has given returns of 8.53%.

ICICI Prudential Banking & PSU Debt Fund (Direct)

Launched on Jan 2010, this fund generates income through investments in debt instruments of banks and public sector companies. Investors in the funds are exposed to a moderate amount of risk and is one of the leading funds of the category. Since its inception, it has generated a return of 8.77%.

ICICI Prudential Short-Term Fund (Direct)

The scheme invests in a range of debt and money market instruments while maintaining an optimum level of liquidity, safety and yield. The fund has a moderate risk level and generates above-average returns. This scheme has an exit load of 0.25% if the investment is redeemed within 7 days.

IndiaBulls Short Term Fund (Direct)

Launched in Sep 2013, the fund generated above-average returns with a low-risk strategy while maintaining an adequate level of liquidity. It is one of the top-rated funds in the category and since its inception, the fund has generated returns of 9.32%. The expense ratio of the fund is at 0.50%.

Franklin India Short Term Income Plan (Direct)

The fund generates higher returns through investments in fixed income securities with shorter maturity duration of fewer than 3 years. The fund invests in a mix of high to moderately rated debt securities. Since its inception, the fund has generated returns of 9.82% and also has the highest expense ratio of 0.79%.

These are top 10 mutual funds for short-term investments you can choose to invest your surplus funds. There are many funds available in the category, and you can select one to invest in after evaluating all the factors according to your risk appetite.

You can click here to know more about these top 10 mutual funds.

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