These are short-term funds with tenure of up to 91 days. These funds invest in money market instruments with a maturity of not more than the tenure of the fund. Experts say since they are short-term funds, their exposure to interest rate volatility is minimal and due to higher interest rates, their short-term yields should go up, generating higher returns.
Investors can look to invest in short-term funds, because these funds have low duration and hence minimal exposure to mark-to-market losses.
In addition, these funds tend to gain from higher yields due to a rise in interest rates.
Investors decide where to invest depending on the time horizon of investments.
If an investor requires liquidity, he should be in liquid funds, because higher interest rates push up shortterm rates. At present, the average annual return on liquid funds is 3.69 per cent with the top-performing fund giving a return of 5.99 per cent. The returns are expected to be higher if interest rates go up.
