Synopsis: Short-term mutual funds invest in debt and money markets with relatively shorter maturity periods. There are several short duration schemes in India that have delivered steady 1-year returns close to 7 to 8%. This eventually waved a clear flag that it is a suitable option for investors looking for stable returns over a shorter investment timeline.
The short-term mutual funds fall under the debt category, and they invest in corporate bonds, treasury bills, government securities, and other related instruments. The maturities often range between one and three years. Because of their shorter duration, these funds tend to carry relatively lower interest-rate risk compared to long-duration debt funds.
Those investors who are looking to park funds for one to three years can opt for short-term mutual funds. Check the list below to learn about the best short-term mutual funds in India that have delivered strong 1-year returns in recent times.
1. Bandhan Short Duration Fund
- NAV (As of 12th March 2026): ₹63.54
- AUM: ₹10,282.74 Cr
- Expense Ratio: 0.34%
- Exit Load: Nil
Performance Snapshot
- 1-Year Return: 7.28%
- 3-Year CAGR: 7.9%
- 5-Year CAGR: 6.4%
This fund invests in banking and financial sector stocks to keep up with the consistent returns. The top holdings include HDFC Bank, Punjab National Bank, Bajaj Housing Finance, Indian Bank, and Kotak Mahindra Bank. These institutions are among the major lenders in India and often provide strong and steady earnings.
2. ICICI Prudential Short Term Fund
- NAV (As of 12th March 2026): ₹68.57
- AUM: ₹22,852.22 Cr
- Expense Ratio: 0.45%
- Exit Load: Nil
Performance Snapshot
- 1-Year Return: 8.01%
- 3-Year CAGR: 8.3%
- 5-Year CAGR: 7.3%
This fund invests in debt instruments, including government and corporate. The current top holdings are GOI, National Bank for Agriculture and Rural Development and LIC Housing Finance. This diversification helps the fund in stable income with controlled credit risk.
3. Axis Short Duration Fund
- NAV (As of 12th March 2026): ₹35.18
- AUM: ₹11,859.67 Cr
- Expense Ratio: 0.38%
- Exit Load: Nil
Performance Snapshot
- 1-Year Return: 7.98%
- 3-Year CAGR: 8.2%
- 5-Year CAGR: 6.8%
The investments division here is a mix of corporate and government securities. The top holdings are National Bank for Agriculture and Rural Development along with Power Finance Corporation and Punjab National Bank.
4. Nippon India Short Duration Fund
- NAV (As of 12th March 2026): ₹59.83
- AUM: ₹8,367.04 Cr
- Expense Ratio: 0.37%
- Exit Load: Nil
Performance Snapshot
- 1-Year Return: 7.95%
- 3-Year CAGR: 8.2%
- 5-Year CAGR: 7.0%
This fund invests vastly in government-related securities, state development loans, and debt instruments. The top holdings are securities issued by the Government of India, state government bonds from Karnataka, Uttar Pradesh, and Madhya Pradesh, along with securitised entities such as Shivshakti Securitisation Trust.
5. Aditya Birla Sun Life Short Term – Direct Fund
- NAV (As of 12th March 2026): ₹53.68
- AUM: ₹9,386.17 Cr
- Expense Ratio: 0.36%
- Exit Load: Nil
Performance Snapshot
- 1-Year Return: 7.76%
- 3-Year CAGR: 8.1%
- 5-Year CAGR: 7.0%
The Aditya Birla Sun Life Short Term Fund invests majorly in corporate bonds and debt. Some of the top holdings in the portfolio are Bharti Telecom, REC Limited, Indian Railway Finance Corporation, National Bank for Agriculture and Rural Development, and Tata Capital Housing Finance.
Also Read: Market Crash? Here’s How SIP Investments Could Benefit Investors During Market Downturns
6. HDFC Short Term – Debt Fund
- NAV (As of 12th March 2026): ₹34.42
- AUM: ₹17,271.28 Cr
- Expense Ratio: 0.40%
- Exit Load: Nil
Performance Snapshot
- 1-Year Return: 7.65%
- 3-Year CAGR: 8.0%
- 5-Year CAGR: 6.8%
The major investment in this fund is spread across government, corporate and debt, which falls under shorter maturities. The top holdings in this fund are GOI, Aditya Birla Renewables, Jubilant Beverages, and JTPM Metal Traders.
7. Mahindra Manulife Short Duration – Fund
- NAV (As of 12th March 2026): ₹13.84
- AUM: ₹89.25 cr
- Expense Ratio: 0.40%
- Exit Load: Nil
Performance Snapshot
- 1-Year Return: 7.57%
- 3-Year CAGR: 8.1%
- 5-Year CAGR: 6.7%
The fund invests in government, corporate, and financial institutions. The top holdings are securities from the Government of India, Embassy Office Parks REIT, National Bank for Agriculture and Rural Development, Small Industries Development Bank of India, and REC Limited.
Comparison of Short-Term Mutual Funds Based on Returns
Note: Data related to NAV, AUM, expense ratio and historical returns have been sourced from publicly available mutual fund data platforms, including Groww. All figures are based on information available as of 12th March 2026.
Common Investment Characteristics in These Short-Term Funds
Even though the funds are managed by different asset management companies, they show similarities in investment strategy to some extent. Most of these funds invest in a mix of government securities, corporate bonds, securitised debt instruments, and bonds issued by financial institutions such as the National Bank for Agriculture and Rural Development, Government of India, and infrastructure financing institutions like REC Limited or the Indian Railway Finance Corporation.
Another common feature is portfolio diversification across issuers and sectors. The division in investments is an attempt to balance credit risk and return generation. The presence of sovereign securities and high-quality institutional issuers also helps maintain stability in the portfolio.
Most short-duration funds also maintain average portfolio maturity between one and three years and it helps limit interest-rate sensitivity. This structure allows the funds to potentially generate moderate but relatively stable income compared to longer-duration debt funds that are more sensitive to interest rate movements.
Conclusion
Short-term mutual funds can be a practical option for investors who want to park money for one to three years. The funds listed above have delivered 1-year returns close to the 7 to 8% range and showed diversified portfolios across various entities.
However, returns in debt funds are influenced by interest rate movements and overall bond market conditions. Investors should therefore evaluate factors before actually parking the money.
Disclaimer: The information provided in this article is for informational purposes only and should not be taken as concrete investment advice. All the investments and mutual funds are always subject to market risks, and past performance does not equate to future gains. Investors should read all scheme-related documents carefully and consult a qualified financial advisor before making any financial decisions.
