Top 5 mutual funds for short-term investments in 2025

If you have short-term financial goals and aspire to invest in a low risk mutual fund, then there are specific categories of the same designed to ensure capital conservation and liquidity during tough times.

These funds generally invest in low risk instruments for example: treasury bills, money market securities among other similar instruments. Thus making them suitable for both capital conservation along with parking additional capital for low risk investors.

Below is the list of top funds that can be opted for short-term investments:

• Liquid funds: This particular fund is a debt fund. It has a maturity of up to 91 days. Certificates of deposits (CDs) and treasury bills. It is important to note that liquid funds offer low credit and interest rate fluctuation risks. They also offer quick redemption options. Hence, making them ideal for investors needing safety and liquidity within a few hours.
• Ultra short duration funds: With a portfolio duration of 3 to 6 months these funds invest in debt instruments. They carry a marginally higher risk and return potential than liquid funds. This fund is conducive for an investment horizon of 6 months or more, thus balancing moderate risk with reasonable returns.
• Corporate bond funds: Corporate bond funds are funds that allocate 80% of their assets towards high rated corporate bonds. The bonds under this category are all AA+ and above. They come with a maturity of 1 to 3 years and offer stability and are a fair option for a 2 to 3 year horizon.
• Banking & PSU debt funds: The primary goal of this fund is to offer lower credit risk. As this fund focuses on investing in top-rated securities issued by leading banks and public sector undertakings. They also offer attractive coupon payments along with benefits from stable returns with a 2 to 5 year duration.
• Arbitrage funds: This is another unique fund that offers low risk returns by leveraging price differences in equity markets. The returns offered under this fund are stable and independent of market movements. As they are defined as equity funds for taxation purposes, they hence remain a unique short term option for investment.

While these funds cater to different risk-return profiles, investors must align choices with their objectives. Always assess tax implications, as gains from debt funds are taxed as per your income slab, while equity-oriented funds like Arbitrage Funds have distinct tax treatments.

Considering long term tax implications of these funds is crucial as gains from debt funds are taxed as per one's income slab. Whereas equity-oriented funds like the arbitrage funds have distinct tax treatments.