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How To Find Good Short Term Debt Funds


So a lot of questions have come in after my Yahoo post on short term debt funds ("Reconsider that Fixed Deposit"), about which funds to choose. Here are the three that I have invested in:

 Deepak's funds

Yes, HDFC’s fund hasn’t done quite as well, but that’ll jump around between the three.

How to find Good Short Term Debt Funds

1) Go to Value Research Online’s "Funds" Comparison section (I have pre-filled the objectives, but it’s the "Category Compare" for "Debt: Ultra Short Term"

2) Click the 1-M Return and 3-M return headers, to rank the funds in ascending order.

VRO Fund COmparison

3) Choose a fund that figures among the top and click on it. Example: JM Money Manager Super.

VRO Snapshot

The important areas are:

  • The chart – is this fund doing better than average?
  • Trailing returns – how has the fund done recently?
  • Are the net assets enough? Something at the 30-40cr. levels may not do too well.

4) Click the Portfolio Tab, and check the securities the fund has invested in:

VRO Portfolio

  • You have to make sure credit quality is decent; it needs to be high.
  • The average maturity – ensure it’s less than 3 months (0.25 years). That way you can exit without a loss within 3 months if the fund doesn’t perform.

5) Lastly, check the "Fund Details" page. You need to ensure there are no weird exit loads. Don’t bother with funds that have an exit load greater than a month.

Note: there is a lot more to explore in there, and VRO has a PDF for each fund that you can check too. The important point is to ensure they are keeping the credit quality and tenures good enough; and when funds stop showing this kind of return, it’s time to exit. You need to expect about 8% to 9% per year on the ultra-short terms.


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