Macaulay Duration is the time taken for the price of a bond to repay to investors through cash-flows including both interest payments and principal repayments. Macaulay Duration of a debt fund portfolio is calculated weighted average time period over which the cash-flows from the underlying bonds in the portfolio is received. Price of bond has an inverse relationship with interest rate changes. If interest rate goes up, bond prices fall and vice versa. A bond with longer Macaulay Duration is more sensitive to interest rate changes. Hence it is important for investors to know the Macaulay Duration of the scheme they are investing in.

Short duration funds can invest in debt and money market securities like Non-convertible debentures, corporate bonds, Government Securities, Commercial papers (CPs), Certificate of Deposits (CDs), T-bBills, Cash and cash equivalent. Macaulay duration of Short duration funds has to be between 1 to 3 years. Fund managers can invest in longer duration papers, but the average duration at a portfolio level should be between 1 to 3 years.

Yield to maturity (YTM) is the total returns (interest payments plus maturity amount or face value) expected on a fixed income security if the instrument is held till its maturity. In other words, YTM is the internal rate of return (IRR) of an instrument which is held till maturity and all the interest payments (coupons) are made as per schedule and re-invested at the same rate.

In short duration funds, YTM depends on market yields (generally it is higher than overnight and liquid funds)

Credit rating is a measure of the creditworthiness, in other words, the financial ability of the issuer to meet interest and principal payment obligation. Credit ratings are assigned by specified agencies like CRISIL, ICRA etc. Credit rating of an instrument may change over time, depending on improving or worsening financial strength of the issuer. If the credit rating of an instrument gets downgraded, its price will fall and vice versa.

Suggested investment tenure is 1 year to 3 years.

The risk profile of short duration funds is Moderately Low. Investors should understand that their investment in short duration funds carry moderately low risk.

Short duration funds are ideal for risk-averse investors who seek to enjoy superior tax-adjusted returns that may be better than fixed deposits over a short to medium term tenure of 1 - 3 years.

• Aims to fulfil ideal fixed income investment for shorter tenure in terms of liquidity
• Moderately low risk
• Less sensitive to inflation as compared to long and medium duration bonds
• High liquidity and easily redeemable, generally within T+3 days
• Ideal for parking surplus funds which you may require any time after 1 year and within 3 years compared to keeping it in the savings account or fixed deposits.

Short term capital gains (if the units are sold within 3 years) in debt mutual funds are taxed as per applicable tax rate of the investor.

Long term capital gains of debt funds are taxed at 20% with indexation.

Indexation benefits reduce the tax obligation considerably compared to investments in bank FDs and many small savings schemes. The first major advantage of debt mutual funds over bank FDs is regarding taxation during the tenure of the investment. In bank FDs, interest whether paid out or accrued in your FD account is taxable. The bank will deduct 10% TDS on the interest

To calculate capital gains with indexation in debt funds, you should index your purchase cost by multiplying the purchase cost with the ratio of the cost of inflation index of the year of sale and cost of inflation index of the year of purchase, and then subtract the indexed purchasing cost from sales value. Let us see an example -

The above is only for illustration purposes only.

Short Duration Fund s are subject to interest rate and credit risks. Bond price have inverse relationship with interest rates. Bond prices fall when interest rate goes up and vice versa. The interest rate risk in Short Duration Fund s are moderate because the average duration of these funds are between 1 to 3 years. Bond prices are negatively impacted by credit risks. Bond prices fall when the credit rating is downgraded. If a bond defaults investors may not get the principal amount back. Credit risk of a Short Duration Fund depends on the credit quality of the bond portfolio of the scheme.

Short Duration Fund s are subject to interest rate and credit risks. Bond price have inverse relationship with interest rates. Bond prices fall when interest rate goes up and vice versa. The interest rate risk in Short Duration Fund s are moderate because the average duration of these funds are between 1 to 3 years. Bond prices are negatively impacted by credit risks. Bond prices fall when the credit rating is downgraded. If a bond defaults investors may not get the principal amount back. Credit risk of a Short Duration Fund depends on the credit quality of the bond portfolio of the scheme.

Investors should look at expense ratio (TER), duration and credit quality of a Short Duration Fund before investing. Higher TER will impact scheme returns and hence lower TER is preferable. Longer the duration of a fund, more sensitive (volatile) it will be to interest rate changes. You should select funds according to your risk appetite. Credit quality is one of the most important factors to be considered when investing in Short Duration Fund s. Though lower rated bonds give higher yields, the risk of making a loss is also higher. You should try to invest in funds with high credit quality.

• The fund is suitable for investors with moderately low risk appetites looking for steady returns.
• The fund is suitable for investors who want to invest in high credit quality funds i.e. low credit risk
• Investors who have investment tenures of at least 2 – 3 years.

Mirae Asset Short Duration Fund does not assure capital protection and guaranteed returns. The fund is subject to market risk, though the risk is moderately low. Past performance of the fund may or may not sustain in future.