Best Short-term Mutual Fund Structure In India

Summary
Short-term mutual funds mainly invest in debt instruments and money market securities, suitable for investors seeking steady income without much risk involved.

AUM, liquidity, past performance, and expense ratio are important factors to evaluate before investing in a short-term fund.

Best 10 Short-term Mutual Funds: Quick Comparison

The best short-term mutual funds in India as of 30 July 2026 are listed below. The listed table includes both short-term and ultra short-term mutual funds and is ranked based on their AUM, periodic returns, and expense ratios. 

Name	Plan	AUM (In ₹ Crores)	NAV	3 M Returns (%)	1 Year Returns (%)	Expense Ratio (%)	Benchmark
Bandhan Short Duration Fund	Direct Growth	8,889.05	65.52	2.40	5.95	0.35	Nifty Short Duration TR INR
Mahindra Manulife Short Duration Fund	Direct Growth	83.87	14.25	2.35	6.24	0.33	CRISIL Short Duration Debt A-II Tier INR
TATA Ultra Short-term Fund	Direct Growth	5,267.09	16.01	1.81	6.84	0.32	CRISIL Ultra Short Dura Debt B-I Tier INR
Nippon India Ultra Short Duration Fund	Direct Growth	10,200.01	4,776.66	1.79	6.85	0.33	Nifty Ultra Short Duration Debt TR INR
Axis Short Duration Fund	Direct Growth	8,183.49	36.15	2.15	6.11	0.39	Nifty Short Duration Debt TR INR
LIC MF Ultra Short Duration  Fund	Direct Growth	440.96	1,447.37	1.80	6.55	0.24	CRISIL Ultra Short Dura Debt A-II TR INR
DSP Ultra Short Fund	Direct Growth	3,904.58	3,970.25	1.71	6.56	0.30	CRISIL Ultra Short Dura Debt TR INR
ICICI Pru Short Term Fund	Direct Growth	19,174.68	70.48	2.18	6.38	0.45	Nifty Short Duration Debt TR INR
Mirae Asset Ultra Short Duration Fund	Direct Growth	1,467.05	1,418.44	1.81	6.60	0.21	Nifty Ultra Short Duration Debt TR INR
Mahindra Manulife Ultra Short Duration Fund	Direct Growth	196.28	1,510.08	1.71	6.51	0.31	CRISIL Ultra Short Dura Debt A-I TR INR

Top 10 Short-term Mutual Funds

Short-term mutual funds are debt mutual funds that mainly focus on fixed-income securities. The best-performing short-term funds invest in money market securities, government bonds, treasury bills, and debt instruments to facilitate liquidity and provide stable returns.

1. Bandhan Short Duration Fund 

The Bandhan Short Duration Fund has an AUM worth ₹8,889.05 crores with an expense ratio charge of 0.35%. The returns earned in 3 months are 2.40% and a 1-year return of 5.95%. This is a growth plan fund that focuses on generating stable income with low risk. The fund includes a large AUM, indicating investors’ confidence. However, returns may be lower compared to long-duration funds.

2. Mahindra Manulife Short Duration Fund 

The AUM of Mahindra Manulife Short Duration Fund is valued at ₹83.87 crores, with an expense ratio of 0.33%. The fund recorded a 1-year return of 6.24% and a 3-month return of 2.35%. It focuses on competitive expense ratios and high-quality instruments.

3. TATA Ultra Short-term Fund

The TATA Ultra Short-Term Fund has an AUM of ₹5,267.09 crores with an expense ratio of 0.32%. The fund has recorded a 3-month return of 1.81% and a 1-year return of 6.84%, while maintaining a well-diversified portfolio.

4. Nippon India Ultra Short Duration Fund

The total AUM of Nippon India Ultra Short Duration Fund is worth ₹10,200.01 crores, holding an expense ratio of 0.33%. The fund displays 1-year returns of 6.85% and 3-month returns of 1.79%. It includes a large AUM and maintains high-quality instruments, enabling stable returns and liquidity.

5. Axis Short Duration Fund 

Axis Short Duration Fund holds a total of ₹8,183.49 crores in AUM, with an expense ratio of 0.39%. It shows an absolute return of 6.11% for 1 year and 2.15% for 3 months. This fund invests in high-quality funds and balanced interest rate risk.

6. LIC MF Ultra Short Duration Fund

The LIC Ultra Short Duration Fund recorded an AUM worth ₹440.96 crores and an expense ratio of 0.24%. The fund recorded absolute returns of 1.80% for 3 months and 6.55% for 1 year. This fund mostly focuses on capital preservation, while having a low expense ratio.

7. DSP Ultra Short Fund

The total AUM of DSP Ultra Short Fund is ₹3,904.58 crores while holding an expense ratio of 0.30%. They delivered a 1-year return of 6.56% and a 3-month return of 1.71%. It maintains a diversified portfolio and helps lower market volatility to support liquidity.

8. ICICI Pru Short-term Fund

ICICI Pru Short-term Fund has an AUM of ₹19,174.68 crores, which is the highest amongst the top 10 short-term funds. It has an expense ratio of 0.45% with a 1-year return of 6.38%. The fund has also recorded a 3-month return of 2.18%. The fund includes professional management teams and high-quality instruments, but includes a comparatively higher expense ratio.

9. Mirae Asset Ultra Short Duration Fund

The total AUM of Mirae Asset Ultra Short Duration Fund is worth ₹1,467.05 crores, while holding an expense ratio of 0.21%. It recorded absolute returns for 1 year at 6.60% and for 3 months at 1.81%. The fund has a relatively lower expense ratio, but has a small AUM. 

10. Mahindra Manulife Ultra Short Duration Fund

Mahindra Manulife Ultra Short Duration Fund has an AUM of ₹196.28 crore, including an expense ratio of 0.31%. It delivered a 1-year return of 6.51% and a 3-month return of 1.71%. It mainly focuses on short-maturity instruments with a low expense ratio. 

How We Selected These Short-term Funds?

The funds were selected based on qualitative and quantitative factors suitable for a wide range of investors.

1. Asset Under Management (AUM): AUM represents the total value of investors’ money in the fund. It indicates their confidence, operational stability, and efficient management of the fund.

2. Liquidity: Since these funds mostly invest in money market and debt instruments, it becomes easier to redeem without affecting the fund’s performance.

3. Expense Ratio: Investors are charged a fee periodically for maintaining and operating their funds. It has a significant impact on the returns earned by the fund.

4. Absolute Returns: The returns earned within a predefined period to evaluate the consistency and profitability of the fund.

Short-term Funds VS Other Funds Category

The table below shows how short-term mutual funds differ from other mutual funds.

Basis	Short-Term Fund	Ultra Short-Term Funds	Long Duration Funds
Primary Investment	They mostly invest in government securities, corporate bonds, and money market instruments	Short-term debt securities and money market instruments	Long-term corporate and government bonds
Risk	Low to moderate	Low	Moderate to high
Return	Moderate	Low to moderate	High, due to volatility
Investment horizon	1-3 years	3-12 months	More than 7 years

Benefits and Risks of Short-term Mutual Funds

The benefits of short-term mutual funds are listed below.

1. Low interest rate risk. These funds invest in short-term debt securities, which reduces the impact of fluctuations in interest rates.

2. Short-term goals: These funds are suitable for investors seeking to invest for a short period of time and achieve their short-term goals.

3. Higher liquidity: They allow investors to redeem their investments on any working day, making it a convenient option for sudden monetary requirements.

4. Professional management: Expert fund managers facilitate and maintain the investments by selecting appropriate investments and making adjustments when required.

The risks associated with short-term mutual funds are listed below.

1. Credit Risk: If the fund fails to deliver the required interest or defaults, investors may face credit risk, which may result in the fund’s weak performance. 

2. Inflation risk: Even if investors earn regular returns but the inflation rate rises gradually, the value of the returns and purchasing power may decrease. 

3. Market Movement: These funds are also affected by changing market conditions, resulting in NAV changes due to market sentiment.

Who Should Consider And Avoid Short-term Mutual Funds?

Investors who should consider investing in short-term mutual funds are given below.

1. Near-term Goal Planners: Investors who seek to invest for a short period to achieve short-term goals, such as a vacation, vehicle, etc

2. Low Risk Seekers: Investors whose risk tolerance is relatively low and who prefer a stable return on their investments may choose to invest in short-term funds.

3. Savings account Upgraders: Investors who aim to earn slightly higher income than the standard savings account may invest in short-term funds.

Investors who should avoid investing in short-term mutual funds are listed.

1. Long-term Wealth Builders: Investors who are interested in investing for a longer period to build wealth for the future may avoid investing in short-term mutual funds.

2. High Return Chasers: Investors who seek to achieve high, stable income with less effect of market volatility may choose to avoid short-term funds.

3. Immediate Cash Holders: Investors may avoid investing in short-term funds if they prefer to redeem their investments within a few days or weeks, as it affects return generation.

How To Choose A Short-term Mutual Fund?

Investors can choose a suitable fund by evaluating the fund’s necessary fundamentals and matching them with their investment goals.

1. Identify Investment Horizon: Investors must identify their investment horizon before investing. It is the duration investors aim to hold their investment for.

2. Historical Performance: Investors must evaluate the past performance of the fund, which will provide an idea of consistency and efficiency.

3. Evaluate Interest Rate Sensitivity: Assess the duration of the portfolio, since a portfolio with lesser duration does not get highly affected by interest rate fluctuations.

4. Fund manager: It is equally important to evaluate the performance record of the fund manager because an experienced fund manager will know how and when to use the required strategies.

SIP vs Lump  Sum For Short-term Funds

Investors can choose to invest in short-term funds through both SIPs and Lump sums. Let’s understand which is more suitable for investors.

Basis	SIPs	Lump sum
Meaning	Investing a fixed amount regularly	Investing a large amount in a single transaction
Suitable for	These are suitable for investors with regular incomes	These are best suited for investors with a large amount of money available
Risk	Relatively lower risk because of rupee cost averaging	Higher short-term market risk since it is exposed to the market
Returns	Steady returns over time, but might be lower in a steadily rising market	May generate high returns if invested during favourable prices

Direct vs Regular Short-term Funds

Let’s understand the difference between direct and regular short-term funds.

Basis	Direct Short-Term Funds	Regular Short-Term Funds
Meaning	Directly purchasing from AMCs without any involvement of intermediaries	Purchased through brokerage platforms, banks, or distributors
Returns	Relatively higher returns due to lower cost	Relatively lower returns because of certain fees and charges
Suitable for	Investors comfortable with independent decision-making and investment management	Investors who seek expert guidance
Cost	Low investment cost because of no intermediaries	High cost because it involves distributors and intermediaries

Taxation of Short-term Mutual Funds

Short-term mutual funds mostly invest in money-market and debt instruments. Therefore, the taxation on capital gains of short-term mutual funds, on or after 1st April 2023,  depends on the holding duration of the asset.

1. Short-Term Capital Gain: If the investment is redeemed within less than one year or 12 months, it is considered short-term capital gains and is taxed as per the income tax slab rate.
2. Long-Term Capital Gain: If the investment is redeemed after 12 months, it is considered long-term capital gains and is taxed at a rate of 12.5% without indexation.

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