Short duration mutual funds invest in treasury bills, commercial papers, certificates of deposits and so on to take care of their liquidity needs. They also invest in corporate bonds, government securities, among others.
According to the Sebi mandate, short duration funds can invest in debt instruments which have maturity between one and three years. That means these schemes are meant for short-term investments of up to three years or more. They are somewhat in the middle when it comes to interest rate risk. They are riskier than liquid, ultra short term, and low duration funds. However, they have a lower risk compared to medium duration and long-term funds.
