Short term funds are debt mutual funds that buy the debt securities of companies for a period of 1 to 3 years. These funds mostly take exposure only in quality companies that have a proven record of repaying their loans on time as well as have sufficient cash flows from their business operations to justify the borrowing.
Unlike equity mutual funds, they fluctuate less in a bear market and thus carry less risks and more stability.
They are highly liquid and easily convertible to cash, thus in times of emergency these bonds can be used for cash requirements.
Investors who want to invest for 1-3 years and are looking for alternatives to bank deposits.
The minimum investment varies from scheme to scheme. It could range between Rs.100/ – to Rs.5,000/ -.
If an investor has made an investment in a debt mutual fund and withdraws the amount before 3 years of investment, Short Term Capital Gains Tax would be levied, as per the income tax slab of the investor.
If an investor withdraws the investment including capital gains post 3 years of investment, 20% Long Term Capital Gains Tax of 20% is levied, with the benefit of indexation.