Short Duration Mutual Funds in India: Lower Risk and Liquidity for 1-3 Year Goals

Short duration mutual funds are drawing attention as equity markets stay volatile. These debt mutual funds aim for steadier returns over shorter periods. They also suit investors who prefer lower risk and easier access to money. With inflation reducing the appeal of fixed deposits, many finance readers are reviewing this category for stability and liquidity.

These funds sit between liquid funds and long-term bond funds on the risk scale. They are built for investors parking money for about one to three years. Returns may not match a strong equity rally. Still, the goal is capital protection with moderate growth from interest income and limited price swings.

SEBI defines short duration mutual funds as debt schemes with a Macaulay duration of one to three years. Fund managers invest in bonds, government securities, and money market instruments within that range. This duration cap reduces sensitivity to sharp interest rate moves. Many investors use them as a middle option in the debt fund universe.

Investors pool money into a scheme managed by an Asset Management Company (AMC). The fund buys debt instruments maturing in one to three years. Regular coupon payments form a key return source. Gains or losses appear through daily NAV changes from accrued interest and bond price moves.

Short duration mutual funds have no compulsory lock-in. Investors can redeem units on any business day. Proceeds usually arrive within one to two business days. This feature can help with short-term goals and unexpected cash needs. It also makes these funds different from products with fixed holding conditions.

Key benefits of short duration mutual funds

Interest rate risk stays lower due to the shorter duration band. When RBI rates rise, NAV falls are often smaller than long-duration funds. In a rate-cut cycle, bond prices can lift returns alongside coupons. Tax treatment depends on holding time, and slab rates apply under three years.

Top short duration mutual funds returns in 1 year

For investors screening options for May 2026, AMFI data shows several regular plans with higher recent returns. The list below covers scheme name, benchmark, risk level, NAV, and daily AUM. Returns and AUM can change, so finance readers may track updates alongside credit quality and portfolio mix.

Rank	Scheme Name	Benchmark	Riskometer	Latest NAV (₹)	1-Year Return (%)	Benchmark Return (%)	Daily AUM (Cr.)
1	ICICI Prudential Short Term Fund	NIFTY Short Duration Debt Index A-II	Moderate	62.9003	4.63	3.87	21389.30
2	Axis Short Duration Fund	NIFTY Short Duration Debt Index A-II	Moderate	32.2791	4.37	3.87	8703.53
3	HDFC Short Term Debt Fund	CRISIL Short Duration Debt A-II Index	Moderate	33.3761	4.14	4.57	14839.29
4	Bandhan Short Duration Fund	NIFTY Short Duration Debt Index A-II	Moderate	59.5292	4.00	3.87	8310.88
5	Sundaram Short Duration Fund	NIFTY Short Duration Debt Index A-II	Low to Moderate	46.0750	3.95	3.87	187.09

Top short duration mutual funds returns in 3 years

Three-year numbers can help investors compare performance across a fuller rate cycle. The following regular plans led this list, along with their benchmarks and daily AUM. Since these are debt products, credit quality, maturity profile, and portfolio concentration still matter. Riskometer labels remained mostly Moderate across the set.

Rank	Scheme Name	Benchmark	Riskometer	Latest NAV (₹)	3-Year Return (%)	Benchmark Return (%)	Daily AUM (Cr.)
1	ICICI Prudential Short Term Fund	NIFTY Short Duration Debt Index A-II	Moderate	62.9003	7.01	6.56	21389.30
2	HDFC Short Term Debt Fund	CRISIL Short Duration Debt A-II Index	Moderate	33.3761	6.97	6.92	14839.29
3	Axis Short Duration Fund	NIFTY Short Duration Debt Index A-II	Moderate	32.2791	6.87	6.56	8703.53
4	Nippon India Short Duration Fund	CRISIL Short Duration Debt A-II Index	Moderate	54.9209	6.77	6.92	7241.92
5	Bandhan Short Duration Fund	NIFTY Short Duration Debt Index A-II	Moderate	59.5292	6.74	6.56	8310.88

Short duration mutual funds remain an option for investors seeking lower volatility over one to three years. SEBI’s duration rule limits interest rate sensitivity compared with longer bond funds. Investors can also redeem without a lock-in, with credit in one to two business days. Returns, risk labels, and AUM figures from AMFI help comparisons, alongside tax rules.