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The objective of the short term mutual fund scheme is to protect capital with low-risk investments in a diversified portfolio of debt and money market securities, while achieving a return that beats relevant benchmark such as a Treasury bill index.<br>Short-term bonds funds are generally considered to be the next step up the ladder in terms of both risk and return potential compared to Liquid Plus funds.<br>
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Analysis of Short Term Funds www.fundzbazar.com
What are About Short Term Funds Short-term funds typically invests in short maturity papers of high quality and low risk. The objective of the scheme is to protect capital with low-risk investments in a diversified portfolio of debt and money market securities, while achieving a return that beats relevant benchmark such as a Treasury bill index. www.fundzbazar.com
Brief Explanation About Short Term Funds • Short-term funds typically try to optimize returns by benefiting from curve Dislocations • The fund managers prefer to invest in securities with high credit rating. This ensures that there is less possibility of default by issuers offering safety to investors' capital. • Typically invests in securities that mature in 1 to 3 years • Short-term bonds funds are generally considered to be the next step up the ladder in terms of both risk and return potential compared to Liquid & Liquid Plus funds • These funds tend to perform when short term interest rates are high due to tight liquidity in the system and could potentially benefit from capital gains when interest rates go down. www.fundzbazar.com
Where Does The Fund Invest • Money Market Instruments • Government Securities/T-bills • Certificate of Deposits • Commercial Papers • Corporate Bonds www.fundzbazar.com
Taxability • It is treated as Debt Funds for tax purpose • Holding Period • Short Term Capital Gain will arise if units are sold before 3 years • Long Term Capital Gain will arise if units are sold after 3 years • Tax Rate • Short Term Capital Gain will be taxed as per slab • Long Term Capital Gain will be taxed at 20% after the benefit of • indexation www.fundzbazar.com
What is Indexation? Indexation is the process that inflates the purchase price of the asset to take into account the impact of inflation considering the time of purchase & sell Every year government declares Cost Inflation Index (CII) which is used to measure the rate of inflation in the economy Let’s look at an example Bought Debt Fund in the year 2013-14 (CII = 939) for Rs 10 lakh. Sold Debt Fund in the year 2016-17 (CII = 1125) for Rs 12.95 lakh. Indexed cost is calculated as – Cost of purchase * CII of the year of sell / CII of the year of purchase 1000000*1125/939, which comes to 11,98,083.07 Long Term Tax liability will be Rs.96916.93 (Rs.1295000 – Rs.1198083.07) www.fundzbazar.com
Short Term Funds Vs Fixed Deposits @ 30% tax slab www.fundzbazar.com
Short Term Funds Vs Fixed Deposits @ 10% tax slab www.fundzbazar.com
Why One Should Invest In This Category • Expense ratio is quite low in these funds • Offers superior liquidity and better returns compared • A safer bet during rising interest rate scenario – Less sensitive • Diversify the portfolio within an asset class • Investors can temporarily park their funds and earn • Tax efficient as dividends are tax-free in your hands www.fundzbazar.com
Risk – Return Matrix www.fundzbazar.com
Other Features • Suitability • Conservative investors who have low to moderate risk taking appetite • Investors who don't want to block funds for long-term • Those who want to take lesser interest rate risk compared to income • fund and Gsec Funds • Ideal Investment Horizon – 6 Months to 1 Year • Exit Load – 0 to 1 Year • Riskometer www.fundzbazar.com
Return Report of Short Term Funds www.fundzbazar.com
