Short-duration funds: Returns levelled off

Short-duration debt funds are in the midst of a sweet run. Their one-year returns are ranging between a healthy 7 and 8 per cent. Throw in the allure of any-time liquidity and these funds become an attractive fixed-income option. Our recommended funds' performances have been no different. Despite losing their indexation benefit and tax advantage, they still stack up well compared to other traditional debt alternatives. Having said that, this is a good time to temper your expectations. The returns are likely to stay in this range going forward. Portfolio engineering for rate-cut benefit In our last update, we highlighted the brewing expectation of rate cuts. Fast-forward six months, the debt market is still waiting in anticipation. However, the consensus is that it's a matter of "when" and not "if". Whenever interest rates do soften, it will be music to the ears for short-duration fund investors. That's because whenever rates fall, gains on market prices lift their returns, which can be considered as a bonus. As a result, fund managers are altering their po