Different types of Debt FUnds

POSTED BY finnaive ON May 7, 2013 3:11 pm COMMENTS (4)

Dear all

Have a question regarding the different types debt funds, 

1) Liquid Fund

2) Short Term Debt Fund

3) Ultra Short Term Debt Fund

What are the main differences of these types of funds, and which one is suitable to what type of scenario? And also how the taxation works on the returns for someone who is in the 30% tax bracket.

Appreciate if someone can help.


4 replies on this article “Different types of Debt FUnds”

  1. finnaive says:

    Thanks Dear Ashal.


  2. Dear Finnaive, for less than 1Y holding, the taxation is same as STCG from debt MFs is to be added into your income from all other sources & ‘ll be taxed @ slab rate. Same is for interest from FD.

    For more than 1Y holding, the gains ‘ll be LTCG & hence ‘ll be taxed either @ 10.3% without indexation or 20.6% with indexation whichever is favorable to you. Here it’s clearly favorable to the people who are in 20 or 30% tax slab over FD. As FD interest ‘ll be taxed @ slab rate.



  3. finnaive says:

    Dear Ashal
    So in essence, the different types of debt funds are all same with a difference in the tenure of the deposit?

    One more question i have, compared to a FD how these funds differ from tax point of view for both tenure (less than a year and greater than a year)

    Thanks for your help

  4. Dear Finnaive, from taxation point of view, all the 3 funds are same for a 30% tax bracket person. Ultra Short Term funds are very much similar to Liquid funds the only difference lies in the fact that the maturity of underlying portfolio (debt papers) is different in both class of funds. Also Liquid funds were more preferred by large corporates for treasury management earlier due to tax friendliness on Dividend distribution tax which is now very much nullify due to high DDT.

    The Short Term funds are meant for parking your money from 6-12 months or even more.



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