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Short and Medium term debt funds

Short as well as Medium term debt funds aim to generate income and capital appreciation through a portfolio of debt as well as money market instruments. Short term debt funds however are less volatile compared to medium term debt funds as they have relatively lower average maturity of the portfolio. Besides, short term debt funds have a favourable risk return profile as they have lower standard deviation compared to medium term debt funds. These funds are appropriate for investors who have short term investment horizon and look for an option that is less volatile but has the potential to perform better than liquid or floating rate funds.
Medium term debt funds or Income funds, as they are popularly known, invest in corporate and sovereign debt with maturities ranging from 2 to 5 years. While these funds have the potential to give better returns compared to liquid or short term debt funds, they can be much more volatile during changing interest rate scenario.

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