Best Short Duration Mutual Funds in India 2026: Top 10 & Guide
What Short Duration mutual funds are, who should invest, key risks, and the top 10 funds with returns and risk data.
Short duration mutual funds are debt funds with an average maturity of 1 to 3 years, aiming for better yields than ultra-short funds while staying less sensitive to interest rates than longer-duration funds. They suit medium-term goals. This guide covers who should invest, benefits, risks, and the top 10 short duration funds from our data.
Key takeaways
- Short duration funds have an average maturity of 1 to 3 years and hold corporate debt, government securities and money market instruments.
- They are less sensitive to interest rate moves than medium or long duration funds.
- They suit a medium-term horizon of 1 to 3 years and moderate risk.
- Key risks are interest rate hikes, credit defaults and liquidity stress.
- The top 10 funds below are ranked by an internal score, with return and risk numbers shown.
What are short duration mutual funds?
A short duration mutual fund is a debt fund that invests in fixed-income securities with shorter maturities, averaging 1 to 3 years. It invests in corporate debt with short maturities, government securities and money market instruments. Its shorter maturity makes it less sensitive to interest rate fluctuations than medium or long duration funds, and the aim is to offer more liquidity than longer-duration funds while earning more than funds with lower maturities.
Who should invest in short duration mutual funds?
- Investors with a medium-term horizon of 1 to 3 years.
- Investors who can accept moderate short-term risk and volatility.
- Investors who want a better yield than ultra-short funds.
- Investors parking money for specific goals.
What should you consider before investing?
- Risk profile: these funds carry lower risk than equities, but they can still show short-term volatility.
- Portfolio term and interest rate impact: a longer maturity makes the fund more sensitive to rate changes.
- Investment goals: useful for an emergency or savings fund or planned expenses, but not for seeking significant returns.
- Performance: compare past returns with peers.
- Costs: expense ratio, transaction costs and exit loads reduce returns, so compare them with similar funds.
Advantages of short duration mutual funds
- Lower volatility and greater stability than longer-term debt funds.
- High liquidity because of the short maturities.
- Diversification through debt securities.
- Professional management to limit risk and preserve capital.
Risks of short duration mutual funds
- Sudden interest rate hikes can lower bond prices and returns.
- Credit risk persists even with highly rated securities, as corporates may default.
- Liquidity issues can arise in stressed markets.
- Broader market risks can raise volatility and liquidity constraints.
How are short duration mutual funds taxed?
A short duration fund is a debt fund and is taxed like other debt funds. Gains on units sold are added to your income and taxed at the applicable rate, regardless of the holding period. Rules change, so check the current position or speak to a tax advisor.
Top 10 Short Duration mutual funds ranked by an internal score
These are the top 10 Short Duration funds from our data, ranked by Invo Wealth's internal fund-quality score. The score itself is not shown, only the return and risk numbers behind it. A "--" means the fund has not completed that period or the data is unavailable. Some entries are different plan or option variants of the same scheme (for example Direct vs Regular, or Growth vs Bonus), so their figures can look similar.
Returns across 6 months to 5 years
Performance data as of 5 September 2026.
| Fund | 6M CAGR | 1Y CAGR | 3Y CAGR | 5Y CAGR |
|---|---|---|---|---|
| BANK OF INDIA SHORT TERM FUND | 5.34% | 5.06% | 7.14% | 10.29% |
| UTI Short Term Fund - Regular Plan - Growth | 5.46% | 5.25% | 6.96% | 6.99% |
| ICICI Prudential Short Term Fund | 6.05% | 5.89% | 7.28% | 6.50% |
| Franklin India Short-Term Income Plan-Growth | 0.00% | 0.00% | 42.95% | 30.14% |
| Franklin India Short-Term Income Plan-Institutional Plan - Growth | 0.00% | 0.00% | 42.94% | 30.10% |
| HDFC Short Term Fund | 5.58% | 5.61% | 7.27% | 6.24% |
| Sundaram Short Term Fund (Formerly Known as Sundaram Short Duration Fund) | 5.47% | 5.35% | 6.93% | -- |
| UTI Short Term Fund - Regular Plan - Discontinued Growth Sub Option | 5.46% | 5.25% | 6.81% | 6.77% |
| HSBC Short Term Fund | 5.42% | 5.30% | 6.95% | -- |
| Axis Short Term Fund | 5.80% | 5.67% | 7.28% | 6.19% |
Risk and consistency metrics
| Fund | ISIN | Volatility | Max drawdown (3Y) | Sortino ratio |
|---|---|---|---|---|
| BANK OF INDIA SHORT TERM FUND | INF761K01579 | 1.77% | -0.60% | 0.19 |
| UTI Short Term Fund - Regular Plan - Growth | INF789F01QA4 | 1.10% | -0.56% | -0.05 |
| ICICI Prudential Short Term Fund | INF109K01654 | 1.12% | -0.54% | 0.41 |
| Franklin India Short-Term Income Plan-Growth | INF090I01304 | 162.23% | 0.00% | 98.57 |
| Franklin India Short-Term Income Plan-Institutional Plan - Growth | INF090I01361 | 162.23% | 0.00% | 98.45 |
| HDFC Short Term Fund | INF179K01CU6 | 1.11% | -0.54% | 0.40 |
| Sundaram Short Term Fund (Formerly Known as Sundaram Short Duration Fund) | INF173K01BA3 | 1.09% | -0.44% | -0.10 |
| UTI Short Term Fund - Regular Plan - Discontinued Growth Sub Option | INF789F01AJ9 | 1.10% | -0.56% | -0.28 |
| HSBC Short Term Fund | INF917K01CL8 | 1.19% | -0.60% | -0.07 |
| Axis Short Term Fund | INF846K01644 | 1.16% | -0.55% | 0.39 |
Check the maximum drawdown to see which funds held up when interest rates moved against them.
How to invest in Short Duration mutual funds
You can invest in these funds using the Invo Wealth app. Sign up, get complete portfolio insights and start investing in mutual funds that actually suit you.
Conclusion
Short duration funds fit medium-term goals where you want more yield than liquid or ultra-short funds. Match the fund's duration to your horizon and check credit quality.
Frequently asked questions
What is a short duration mutual fund?
It is a debt fund that invests in fixed-income securities with shorter maturities, with an average maturity of 1 to 3 years, across corporate debt, government securities and money market instruments.
Who should invest in short duration funds?
Investors with a medium-term horizon of 1 to 3 years who accept moderate short-term risk and want a better yield than ultra-short funds.
What are the risks of short duration funds?
Sudden interest rate hikes, credit defaults, liquidity issues in stressed markets and broader market risks can all affect returns.
How are short duration funds taxed?
They are taxed like other debt funds: gains are added to your income and taxed at the applicable rate regardless of holding period, subject to the rules in force.
How can I invest in short duration mutual funds?
You can invest through a SIP or a lump sum. To invest in these funds, you can use the Invo Wealth app: sign up, get portfolio insights and start investing.
Mutual fund investments are subject to market risks; read all scheme-related documents carefully. This article is for education only and is not investment advice. Past performance does not guarantee future returns. Invo Wealth is an AMFI-registered mutual fund distributor (ARN-368528).