This investment option offers higher returns than fixed deposits, PPF

With the government trimming returns on small savings schemes such as fixed deposits, public provident funds, post office time deposit schemes and Kisan Vikas Patra on a regular basis, investors who want to park money for 1-3 years should look beyond the general destinations.

In such cases, one of the asset classes to consider is short-term income funds which offer 9-10 percent annualized returns.

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These are highly liquid funds, hence you can withdraw money anytime unlike fixed deposits which come with a fixed lock-in period.

They are also tax-efficient compared to fixed deposits. If you exit after three years, capital gains are taxed at 20 per cent with an indexation benefit on your cost. If you sell within three years, it is treated as short term and gains get added to your income and taxed as per your applicable tax slab.

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Besides clocking higher returns than fixed deposits, these funds are actively managed to generate returns from varying interest rate cycles.

We pore over six short-term income funds which Value Research has recommended not only for their chart-topping returns but for their ability to finely balance risks with returns.

The funds have been picked for very conservative portfolios and low credit risk, their tight rein on portfolio duration and their ability to deliver good returns with relatively low expense ratios.

Axis Short Term Fund

The fund had assets worth Rs 6,381 crore on June 30, 2017. Its expense ratio was 0.85 percent. The fund was launched on January 22, 2010 and has returned 8.33 percent since then.

The open-ended fund has zero percent exit load.

The fund's one-year, three year and five year returns are 8.23 percent, 8.85 percent and 8.72 percent, respectively.

This fund has holdings in 8.1 percent Reliance Jio Infocomm 2019 debentures, 8.15% Rajasthan State 2021 state development loan, government of India securities and HDFC bonds and debentures

Birla Sun Life Short Term Fund

The fund had assets worth Rs 18,055 crore on June 30, 2017. Its expense ratio was 0.31 percent. The fund was launched on March 3, 1997 and has returned 9.53 percent since then.

The open-ended fund has zero percent exit load.

The fund's one-year, three year and five year returns are 8.86 percent, 9.57  percent and 9.48 percent, respectively.

This fund has holdings in 8.15% GOI 2026, 8.15% HDFC 2018 debentures and 8.55% Reliance Jio Infocomm 2018 debentures among others.

HDFC Short Term Opportunities Fund

The fund had assets worth Rs 9411 crore on June 30, 2017. Its expense ratio was 0.37 percent. The fund was launched on June 25, 2010 and has returned 9.03 percent since then.

The open-ended fund has zero percent exit load.

The fund's one-year, three year and five year returns are 8.21 percent, 9 percent and 9.08 percent, respectively.

This fund has holdings in 8.75% ONGC Petro Additions 2019 debentures, Indiabulls Housing Finance 2019 Debenture and 8.55% Reliance Jio Infocomm 2018 debenture among others.

ICICI Prudential Ultra Short Term

The fund had assets worth Rs 8359 crore on June 30, 2017. Its expense ratio was 0.57 percent. The fund was launched on June 12, 2009 and has returned 8.96 percent since then.

The open-ended fund has zero percent exit load.

The fund's one-year, three year and five year returns are 8.51 percent, 9.11  percent and 8.95 percent, respectively.

This fund has holdings in 8.48% Odisha State 2021 loan, HDFC 364-D 04/06/2018 commercial paper and Shriram Industrial Holdings 2019 debentures among others.

SBI Short Term Debt Fund

The fund had assets worth Rs 7230 crore on June 30, 2017. Its expense ratio was 0.90 percent. The fund was launched on July 27, 2007 and has returned 8.30 percent since then. It belongs to the SBI mutual fund house.

The open-ended fund has zero percent exit load.

The fund's one-year, three year and five year returns are 8.39 percent, 9.04 percent and 8.84 percent, respectively.

This fund has holdings in 7.2% Power Grid Corp. 2021 bonds, 7.05% Power Finance Corp. 2020 debenture and 7.2% IRFC 2020 bonds, among others.

UTI Short Term Income Fund

The fund had assets worth Rs 9988 crore on June 30, 2017. The fund was launched on June 24, 2003 and has returned 8.01 percent since then.

The open-ended fund has zero percent exit load.

The fund's one-year, three year and five year returns are 8.57 percent, 8.96 percent and 9.27 percent, respectively.

This fund has holdings in  6.79% GOI 2029, 7.6% HDFC 2020 debebtures and 6.35% GOI 2020 among others.