In our last update six months back, we discussed the second coming of short-duration funds. As of November 13, 2023, it definitely seems like it, with an average fund delivering over 6 per cent returns, as against 2022's 3.78 per cent. With this, the one-year rolling returns have reached the levels they were two-and-a-half years ago. So, let's look at what's been happening with these funds since our last update. No indexation rule: Short-duration funds vs fixed deposits Short-duration funds no longer have the privileges of indexation, a feature that helped reduce your tax outgo for holding them for longer periods. As a result, these funds have lost the tax advantage over FDs (fixed deposits). That said, short-duration funds still hold sway over FDs due to following reasons: For starters, the gains from debt funds are taxed only when you sell the fund, whereas with FDs, the interest earned is taxed every year. Additionally, short-duration funds are much more liquid compared to FDs, where you have to pay a penalty if you withdraw early. Third, while FDs, admittedly, provide more surety, short-duration funds promise a fairly stable returns trajectory over a longer-term investment horizon. Last but not least, short-duration funds are poised to pass on the gains on market prices (capital appreciation) to investors once rates start to fall and bond prices (read NAV for debt funds) rise. The expectation of better returns is reflected in these funds' yield-to-maturity, which helps gauge the return potential of a fund's portfolio. As of October 2023, the average YTM of short-duratio
Buy, hold, or switch. Get the call.
How's my portfolio doing? What do I need to fix? Where should I invest next? Fund Advisor answers each one. The Advisor Note every Saturday. A live session with Dhirendra Kumar every second Saturday.
No commissions. No conflicts. Since 1991.
See Plans
Already a subscriber ?Log In
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
