A short-term debt fund refers to an equity mutual fund scheme lasting between one to three years, although it may also stretch for four years. Stable returns and modest risks usually accompany this investment. Due to similar investment terms, short-term debt funds are often equated with bank Fixed Deposits (FDs) with comparable tenures at the time of investment. Nevertheless, for three years, a short-term debt fund is more tax-efficient than an FD. Although it is comparatively more volatile than an FD, it is generally recommended by analysts from the liquidity, returns and tax perspective to its rival. Short-term funds do not penalize their redemption before the date of maturity unless they are repaid before the pre-determined time.

Short Duration Fund : Such mutual funds pick investment bonds / debt so that the average portfolio maturity (residual) is between 1 and 3 years (Macaulay duration). Shorter long-term funds can yield lower returns but are less risky for changes in interest rates.
Risk : Moderate