Debt mutual funds serve as a prudent investment avenue for businesses looking to diversify their investment portfolio by balancing risk and reward. In the current economic climate, where inflation is still at elevated levels, debt funds act as a safe haven to earn decent returns along with minimal risk.
Having said that, short-duration debt funds make a compelling case among the different categories of this fund for investment for corporates. Let’s see why.
What are Short Term Debt Funds?
Short term debt funds or short-duration debt funds are mutual funds with a maturity period of one to three years. They invest in debt and fixed-income securities such as government and corporate bonds such as commercial papers, floating-rate bonds, and debentures, among others. The shorter maturity period makes the funds less susceptible to changes in interest rates.
Short duration debt funds can be a prudent investment option for accomplishing short term corporate goals like building an emergency fund, accumulating a corpus for buying new machinery, etc.
Benefits of Investing Company Money in Short Term Debt Mutual Funds
- Less Risk Due to Interest Rate Hike
This is one of the major benefits of investing company money in short term debt funds. Note that interest rates and bond funds share an inverse relationship. When interest rates go up, bond yield goes down and vice versa.
While much of the rate hike has already been done, inflation still remains sticky. It is still above the comfort level of the RBI. To combat it, the apex bank may possibly hike key rates, which, if done, can affect returns from debt funds holding bonds with longer maturity periods. On the other hand, as the maturity period of the underlying bonds of short term funds is low, they are less prone to a hike in interest rates, which ensures returns don’t take a hit in the event of a rise in rates. As per data, the trailing 1-year return of short-duration funds stood at 4.86% as of March 29, 2023.
- High Liquidity
The economic climate is volatile. Geo-political strife coupled with the failure of key banks across the globe has given rise to recession concerns. Even otherwise, global agencies have anticipated a recession looming large, and if it indeed hits, finances of organisations can come under strain. In such a scenario, liquidity becomes a challenge.
This is where investment in short term debt funds, including ultra-short-duration debt funds, can come to your aid. You can liquidate your investment at any time needed without paying any exit load. Upon placing a redemption request, the money is credited to the account the next day. This ensures you remain on top of your finances and are emergency-ready.
- Investment Flexibility
Short term debt mutual funds offer investment flexibility, making them an ideal investment option for business owners. Unlike other investments that may require a long-term commitment or have restrictions on when you can buy or sell them, short term debt mutual funds offer great flexibility.
With these funds, you can invest their company’s money for as little as a few months, up to a few years, depending on your investment goals and needs. This flexibility makes it easier to manage the company’s finances while earning decent returns on their investments.
In Conclusion
As evident, mutual fund investment in short term debt funds can spell multiple benefits for you and your business. It can guard against interest rate risk and provide much-needed liquidity in trying times. If you are looking forward to investing in these funds, you can bank on Shootih – India’s First Business Wealth Management Platform.
To see how, Shootih can help you make the most of your business idle cash, call us at +91-8818880836 or write to us at hello@shootih.com. Alternatively, you can schedule a demo call with our expert today by clicking here.
Disclaimer: Mutual fund investments are subject to market risks, please read all scheme-related documents carefully.
The content of this blog is not intended to serve any professional advice or guidance and Shootih takes no responsibility or liability in whatsoever manner for any investment decisions made by the readers of this blog or other blogs. Readers should seek independent professional advice before making any investment decision based on the information provided on this website.
