Mutual fund managers and advisors have been recommending short duration mutual fund schemes to conservative investors looking to invest in debt mutual funds for a while now.
According to the Sebi categorisation norms introduced in October 2017, short duration schemes or erstwhile short term funds are open-ended short-term debt schemes that invest in instruments with macaulay duration of between one and three years. This means investors can consider investing in these schemes with a horizon of a few years.
If you are new to debt mutual fund schemes, here is why you should stick to short duration schemes at the current juncture. Debt mutual fund schemes, especially long-term debt schemes, are extremely sensitive to changes in the interest rate scenario.
This is because of the inverse relationship between rates (bond yields) and bond prices. When rates go up, the prices of bonds fall. When prices of bonds fall, it drags the net asset value or NAV of debt mutual fund down. Long-term bonds are extremely sensitive to interest rates changes. So, debt mutual funds that invest in long-term bonds suffer the most when the central bank pause or start hiking interest rates.
Therefore, most mutual fund advisors are recommending short duration debt mutual fund schemes to investors these days. They reason that even if the central bank goes slow on rate cuts, its impact would be less on short duration schemes.
So, if you are planning to invest for a few years, short duration schemes must be your choice. To make your selection process easier, ETMutualFunds.com has put together a list of short duration schemes. Here are our recommended short duration debt mutual funds:
Best short duration funds to invest in 2019
|HDFC Short Term Debt Fund|
|ICICI Prudential Short Term Fund|
|Axis Short Term Fund|
ET.com Mutual Funds 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
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3 Comments on this Story
DrBenoyKumar Chattapadhyaya730 days ago
Blindly don''t invest in Mutual Fund.
H K Doshi Doshi732 days ago
As per latest report due to exposure to ILFS , rating agencies has keep these funds under watch category, so investor should study before any investment in these funds.
Vishal Navlani733 days ago
I don''t understand why are you misguiding the investor with such articles. Franklin India ultra short term bond fund - super insituational plan is far better and safer than the plan you have suggested. I think writer of this article is biased becuase he/she is gettign some commission or kickback to market the products of these AMC''s. Compare the funds risk vs returns with Franklin ultra short term bond fund and then tell me if your suggested fund are better or the one I have suggested is better. stop writing such articles else I will complain to SEBI about your misguidance to general public and investors.