Short-term MFs make a quiet comeback

Short-term debt funds (STF) have staged a quiet comeback in the backdrop of the recent market meltdown leading to change in investment preferences and subsequent scaled down expectations from fixed-maturity plans.

If the latest trends are to be believed, amid all the debt funds, the shorter term variety is back in the reckoning.

According to a research from Kolkata-based SKP Securities, STF has surpassed three other major categories "� gilt funds (short term), liquid funds and liquid plus funds "� in three to six-month period.

In the three-month period, returns from STF stood at 2.15 per cent against 2.02, 1.87, 2.09 per cent for short-term gilt funds, liquid funds and liquid plus funds, respectively.

Similarly, in the six months period, returns from short-term gilt funds, liquid funds and liquid plus funds at 3.79, 3.69, and 4.12 per cent, respectively, were lower than 4.31 per cent from the short-term debt funds.

However, if annual returns are taken into consideration, only liquid plus yielded higher returns at 8.10 per cent against 7.38 per cent for STFs.

So there is an obvious case for investing in these funds and sentiments are turning for the better.

In the backdrop of interest rates off their peaks, policy rates not expected to go up coupled with strong inflationary pressure, a slowdown in credit growth and a comfortable liquidity situation, STFs present a strong case for their rising popularity.

Moreover, with some FMPs (quarterly variety) becoming somewhat uninspiring due to a fixed yield without any chance of an upside, STFs are favourably placed against them. In addition, an STF aims at maximising income from a basket of securities, depending on a fund manager's skills.

Fund managers feel that global cues and a compulsion to bolster investments will prompt the apex bank to cut rates in the first half of the current year, implying flattening yields in the 0-2 years segment over the medium term, signifying a further rise of the already attractive spreads of corporate bonds, in the weeks ahead.

In this context, STFs would be a favourable option for investors who wish to have a portfolio positioned between a liquid/ liquid plus fund and a straight-laced income fund.