Best short duration mutual funds to invest in 2021

Short duration mutual fund category was on the recommendation list of most debt fund managers in the last 1-2 years. Given the credit crisis followed by the interest rate changes, these schemes were considered a safe bet to play duration with stability. The category has offered 6.72% returns in one year and the outlook for these schemes remain positive this year as well. Here is a monthly update on our list of best schemes in this segment that you can pick.

According to the Sebi mandate, short duration schemes are open-ended short-term debt schemes that invest in instruments with a Macaulay duration of between one and three years. This means investors can consider investing in these schemes with a horizon of a few years.

12 schemes from the short duration category have offered more that 10% returns in one year.


If you are thinking of investing for a year or two, you may consider investing in short duration funds. Mutual fund managers and advisors recommend short duration mutual fund schemes to conservative investors. To make your selection process easier, here are our recommended short duration debt mutual funds:

Best short duration funds to invest in 2021

HDFC Short Term Debt Fund

ICICI Prudential Short Term Fund

Axis Short Term Fund

Methodology:

ETMutualFunds.com has employed the following parameters for shortlisting the debt mutual fund schemes.

1. Mean rolling returns: Rolled daily for the last three years.

2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.

i)When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.

ii)When H <0.5, the series is said to be mean reverting.

iii)When H>0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series

3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.

X =Returns below zero

Y = Sum of all squares of X

Z = Y/number of days taken for computing the ratio

Downside risk = Square root of Z

4. Outperformance: Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.

Asset size: For debt funds, the threshold asset size is Rs 50 crore

(Disclaimer: past performance is no guarantee for future performance.)