Top Short Term Mutual Funds in India (2025)
Short-term mutual funds are mutual funds that have performed exceptionally well in the short period of 1 to 3 years. Investors with a short term investment horizon looking to gain from the best ultra short term funds can consider these funds. In this article, we will explore a list of the top short term mutual funds in 2024 and discuss their features, factors and how to invest in these short term funds in India.
Top 10 Short Term Mutual Funds in India (2024)
The following are the top 10 mutual funds for short term investment:
| Fund Name | Sub Category | AUM (in Cr.) | CAGR 3Y (Rs.) | Expense Ratio | Absolute Returns - 1Y (%) |
|---|---|---|---|---|---|
| Motilal Oswal Midcap Fund | Mid Cap Fund | 20,055.68 | 38.50 | 0.54 | 61.44 |
| IL&FS Infra Debt Fund - Series 2-C | Sectoral Fund - Infrastructure (Debt) | 276.93 | 23.01 | 0 | 56.15 |
| IL&FS Infra Debt Fund - Series 2-B | Sectoral Fund - Infrastructure (Debt) | 348.27 | 30.31 | 0 | 55.89 |
| LIC MF Infra Fund | Sectoral Fund - Infrastructure | 852.07 | 35.22 | 1.06 | 54.63 |
| IL&FS Infra Debt Fund - Series 2-A | Sectoral Fund - Infrastructure (Debt) | 204.53 | 48.76 | 0 | 53.72 |
| HDFC Pharma and Healthcare Fund | Sectoral Fund - Pharma & Health Care | 1,459.59 | 0.00 | 0.94 | 53.39 |
| Motilal Oswal ELSS Tax Saver Fund | Equity Linked Savings Scheme (ELSS) | 4,186.93 | 30.44 | 0.65 | 52.84 |
| Motilal Oswal Large & Midcap Fund | Large & Mid Cap Fund | 6,840.21 | 30.78 | 0.48 | 50.72 |
| Bandhan Small Cap Fund | Small Cap Fund | 9,248.28 | 32.11 | 0.41 | 49.98 |
| Invesco India Midcap Fund | Mid Cap Fund | 5,862.67 | 28.15 | 0.58 | 49.57 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
- Plan: Growth
- Category: Debt & Equity
- Absolute Returns-1Y: Sorted from Highest to Lowest
Note: The data on the list of the top performing short term mutual funds is from 20th December, 2024. This data is derived from the Tickertape Mutual Funds Screener.
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Overview of the Best Short Term Mutual Funds
Here is a brief overview of the Best Short Term Mutual Funds as listed above:
Motilal Oswal Midcap Fund
Managed by Motilal Oswal Asset Management Company Ltd. (MOAMC), this fund is designed to achieve long-term capital appreciation by investing in high-quality mid-cap companies with strong competitive advantages and growth potential. The fund’s expense ratio of 0.54% indicates its moderate cost of management, and the exit load of 1.00% applies if investors redeem their holdings within a specified period. With a Sharpe ratio of 2.80, the fund demonstrates a strong risk-adjusted return, making it a compelling choice for growth-focused investors.
IL&FS Infra Debt Fund – Series 2-C
Managed by IL&FS Infra Asset Management Limited (IIAML), this scheme aims to generate income and capital appreciation by investing primarily in SEBI-approved infrastructure debt instruments. As one of the short term mutual funds in India, the fund targets steady returns through structured investments in the infrastructure sector, a vital pillar of economic growth. While specific performance metrics like expense ratio or Sharpe ratio aren’t highlighted, its focus on infrastructure adds stability and diversification potential to investor portfolios.
IL&FS Infra Debt Fund – Series 2-B
Similar to Series 2-C, this scheme is also managed by IIAML with an identical objective of generating income and capital appreciation through investments in infrastructure debt instruments. As one of the best best ultra short term funds, it leverages the growth potential and stability of infrastructure investments. It also aligns with the needs of risk-averse investors seeking steady income and moderate capital growth.
LIC MF Infra Fund
Established by LIC Mutual Fund, this scheme invests in equity and equity-related instruments of companies within the infrastructure sector to achieve long-term growth. The fund boasts a low expense ratio of 0.06%, making it a cost-efficient option for investors. However, an exit load of 1.00% applies on premature redemptions. With a Sharpe ratio of 1.99, the fund offers decent risk-adjusted returns, making it suitable for investors looking to balance growth and stability in the infrastructure domain.
IL&FS Infra Debt Fund – Series 2-A
Another offering from IIAML, this scheme follows the same strategy as Series 2-B and Series 2-C, targeting income and capital appreciation through investments in infrastructure debt instruments. As an ultra short duration fund, its focus on structured investments in the infrastructure sector ensures stability and predictable returns, appealing to investors with a low-risk appetite.
What are Short Term Mutual Funds?
Short-term mutual funds are mutual funds that generated the highest returns in the short period. These funds primarily invest in high-quality stocks to build a sectoral or thematic fund which is bound to rebound during the season.
Features of Short Term Mutual Funds
- Low-Risk: Short term mutual funds investments are typically low-risk, high-quality funds based on thematic scheme, which are bound to grow during the season. Ultra short duration funds includes gold funds which grow exceptionally during the festive season.
- Higher Returns: The best funds for short term investments usually offer higher returns compared to Fixed Deposits and Savings accounts. Investors benefit from a more profitable alternative without significantly increasing their risk exposure.
- High Liquidity: One of the primary features of the best mutual funds for short term growth is their high liquidity. Investors can quickly access their funds, often without significant penalties or restrictions, making these funds suitable for those needing rapid access to their capital.
- Investment Period: Short-term mutual funds help investors align their investment strategies with the time horizons of their financial goals. They are ideal for short-term investment horizons, typically ranging from 1 to 3 years.
- Stable NAV: The best mutual fund for short term aims to maintain a stable Net Asset Value (NAV), often set at a fixed value to ensure minimal fluctuations. This stability is a significant advantage for investors seeking consistent returns.
- Diversification: Diversification is another critical feature, as these funds invest across different issuers, sectors, and types of debt instruments. This diversification helps mitigate risk and maintain the fund’s stability.
How do Short Term Mutual Funds Work?
Short term funds invest in thematic and sectoral schemes with the opportunity to grow. These funds are managed by experienced Fund Managers who take into cognisance the financial well-being of the company to build a strong fund of high-quality stocks.
Who Should Explore Short Term Mutual Funds?
- Investors with an investment horizon of at least one year: Short-term funds are designed to generate higher returns, but they come with increased volatility. If this aligns with your risk tolerance and fits your investment strategy—such as a plan to remain invested for at least a year—short-term mutual funds can be a good match for your investment mindset.
- Institutional investors: Pension funds, endowments, and insurance companies may allocate part of their portfolios to short term funds. These funds help manage cash flows, meet short-term obligations, and provide portfolio stability.
- Thematic Investors: Short term mutual funds can be preferred by investors who want to capitalise on seasonal trends.
- Sectoral Investors: Investors who want to explore in the seasonal sectors in India can also consider investing in short term investment mutual funds.
How to Invest in Short Term Mutual Funds?
Here’s a guide on how to invest in short term mutual funds:
- Step 1: Download your preferred investment mutual fund provider app or visit the AMC’s website.
- Step 2: Complete all required details.
- Step 3: Finish the KYC process.
- Step 4: Choose your preferred short-term mutual fund.
- Step 5: Decide between SIP or Lumpsum.
- Step 6: Link your bank account, set up auto-debit, and begin investing.
How to Identify the Best Short Term Mutual Funds?
If you’re wondering ‘which mutual fund is best for short term’, making informed decisions before investing is essential. Here is how you can identify the best short term mutual funds for investment:
- Expense Ratio: Lower expense ratios can significantly impact your returns over time. Look for the best ultra short term funds with lower expense ratios, as they can minimise the drag on your investment.
- Fund Performance: Review the historical performance of short term mutual funds, focusing on their consistency and returns over different time frames. Look for ultra short duration funds that have outperformed their benchmarks. Investors can explore tools like the Tickertape Mutual Fund Screener to check fund performance.
- Fund Manager’s Track Record: The fund manager’s experience and track record are crucial. A seasoned manager with a history of making prudent investment decisions can enhance the fund’s performance.
- Credit Quality: If you’re considering debt-oriented short-term funds, pay attention to the credit quality of the portfolio. Funds with higher credit ratings tend to be safer investments.
- Exit Load: Be aware of any exit loads that might apply. Some funds charge a fee if you withdraw your investment before a specified period. Choose funds with favourable exit load structures.
- Tax Implications: Understand the tax implications of your investment. Short-term capital gains tax rates may apply, and the choice of funds can impact your tax liability.
Advantages of Investing in Short Term Mutual Funds
Investing in short term mutual funds offers several advantages listed below:
- Safety: The best mutual fund to invest for short term primarily invests in low-risk securities, aiming to preserve your capital while generating modest returns. This focus on low-risk investments makes them a secure option for those seeking to protect their initial investment.
- Liquidity: Short-term mutual funds are highly liquid, allowing you to access your money quickly and without significant penalties. This makes them ideal for emergency funds or achieving short-term financial goals, providing the flexibility to meet unexpected expenses.
- Steady returns: Short term mutual funds with high returns offer stability and consistency. Investors can expect reasonable returns with minimal volatility, making them a reliable choice for those seeking predictable income.
- Diversification: Low duration funds spread investments across various instruments, reducing the risk associated with a single asset. Diversification helps protect your investment from significant downturns, offering a balanced approach to risk management.
- Low minimum investment: Short-term mutual funds typically have low minimum investment requirements, making them accessible to a wide range of investors, including those with limited funds. This allows more people to take advantage of the benefits these funds offer.
Factors to be Considered Before Investing in Short Term Mutual Funds
Investors make investment decisions influenced by several key factors, when investing in short term mutual funds:
- Defining Investment Goals: The best short term investment instrument should align with the investor’s specific financial objectives, whether short-term or long-term, making goal congruence crucial.
- Determining Investment Duration: The timeframe an investor intends to maintain their investments impacts their selection. Investment options vary based on horizons, with short-term mutual funds, for instance, tailored for durations of up to three years.
- Embracing Portfolio Diversification: A well-balanced portfolio is essential for optimal growth. Effective diversification involves segmenting goals by time horizon and allocating investments across appropriate instruments. The best mutual funds for 1 month offer an excellent option for diversifying short-term holdings.
- Tax Considerations: Investors must factor in tax implications when making investment choices. Taxation varies based on the chosen investment vehicle, with the growth option of short-term mutual funds subject to taxation at the investor’s applicable slab rate.
Risks of Investing in Short Term Mutual Funds
Short Term mutual funds have attractive benefits. Nevertheless, there are a few challenges and risks associated with investing in the best short term funds:
- Underperforming Sectors: During particular seasons, some sectors fail to ride the momentum, thus generating lower returns in even the best short term debt funds.
- Market Fluctuations: Since they are based on thematic scheme, the overall market fluctuation halt the growth of these funds.
- Sector Aligned: These funds invests in one theme/sector, which might not be in the government’s vision during the budget. Therefore, the probablity of generating high returns on investment closely related to the economy’s vision.
What are Ultra Short Term Funds?
Ultra Short Term Mutual Funds are tailored for conservative investors with a 3-6 month investment horizon. These funds strategically invest in debt securities and money market instruments to maintain a Macaulay Duration within the 3-6 month range.
This makes them ideal for those looking to achieve specific financial goals within a 6-month timeframe. With average returns typically ranging between 7% and 9%, these funds offer a balanced blend of security and potential growth for short-term objectives.
Difference Between Short Term and Long Term Mutual Funds
The differences between Short Term Mutual Funds and Long Term Mutual Funds have been listed below:
| Points of Difference | Long-Term Mutual Funds | Short-Term Mutual Funds |
| Time | Typically 10 years or more, suited for extended objectives. | Generally three years or less, suitable for shorter-term goals. |
| Risks Associated | Exposure to market fluctuations over extended periods. | Vulnerability to shorter-term market volatility |
| Investing Goals | Aligned with long-term objectives like retirement and education. | Tailored for shorter-term goals such as vacations, weddings, or home improvements. |
To Wrap It Up…
In conclusion, the best mutual funds for short term investments offer a flexible and effective way to meet your immediate financial goals while managing risk. Whether you’re planning a vacation, a wedding, or home improvements, these funds can provide stability and competitive returns over a shorter investment horizon. However, it’s crucial to carefully assess your specific needs, risk tolerance, and objectives before diving in. By understanding the dynamics of short-term investments and considering factors like your time horizon, market risk, and goals, you can make informed decisions to optimise your financial journey.
Frequently Asked Questions (FAQs) on Short Term Mutual Funds
The key lesson for investors is that not all investments are suitable for everyone. Short-term mutual funds best fit those with shorter investment horizons, offering potential for higher returns compared to traditional bank savings accounts while maintaining liquidity.
Here are the top short term mutual funds based on their 3-month absolute returns:
– Motilal Oswal Business Cycle Fund
– Motilal Oswal Multi Cap Fund
– Motilal Oswal Small Cap Fund
– Motilal Oswal Manufacturing Fund
– Nippon India Taiwan Equity Fund
Note: This data has been taken on 20th December, 2024.
Here are the best mutual funds to invest in for short term, based on their 6-month absolute returns:
– IL&FS Infra Debt Fund – Series 2-C
– IL&FS Infra Debt Fund – Series 2-B
– IL&FS Infra Debt Fund – Series 2-A
– Motilal Oswal Multi Cap Fund
– Bandhan Nifty IT Index Fund
Note: This data has been taken on 20th December, 2024.
Short-term investments offer stability by reducing risk and diversifying income sources in times of market volatility. However, as all mutual funds, short term debt funds are also subject to market risks and short term market fluctuations.
Investors often opt for short term investments that minimise their capital risk. This is crucial because, within a tenure of up to 1 year, you may not have adequate time to recover from potential losses.
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