Every investor today wants to make the most out of stock market investments. That's why we see several plans being released in the market to quench this demand. We commonly hear that mutual funds need long term investments to yield benefits. But the finance industry offers mutual funds to short term investors as well. Short term funds are offered in the debt category that individuals can make for a brief period of time. The fund invests the money in market instruments with a maturity period of 91 days or less.

Short term funds are open-ended schemes wherein investors who have a short term investment requirement or with a lot of cash and low risk appetite can invest to achieve their goals. This scheme can be chosen by corporate as well as retail investors. You have the option of investing in the plan for either less than 15 days or for two-four months. In either of the cases you are secured from any interest rate volatility.

A short term fund for a period of 15 days is as good as a bank's saving account that gives 4% returns. You can compare this scheme to a fixed deposit that offers around 9% interest on an average.

If you choose a plan on the basis of daily returns, then the returns you get could be volatile given the day-to-day changes in the interest rate in the money market. However, these investments carry low interest rate risk because of the low maturity profile. Mutual fund investments feature high risk elements as compared to investing in a bank. Also, you cannot issue any cheques against the funds like you can in case of a savings account in a bank.

Some short term funds do not charge exit load of any kind from the investor. So the profits made on the investment are completely yours. But do check the fund you choose for this feature as some plans continue to charge exit load. Other charges are similar to what one would pay for any other mutual fund scheme.

Short term funds give you the choice of investing with either growth or dividend option. In terms of taxation, these funds are treated similarly as a fixed deposit account with a bank. The income generated is added to the investor's income and taxed according to the tax slab. With dividend the income tax is free at the hands of the investor, because the tax is deducted by the mutual fund itself.

Note: Mutual Funds are subjected to market risks, read all scheme related documents carefully