Short term bond funds invest in fixed income securities that are longer in the duration than the portfolio of liquid or ultra short term bond fund, but shorter in duration than the portfolio of income funds. The average maturity of securities in short term bond funds is less than three years. These funds are suitable for investors, who want to hold their investment at least for a period of 1 year. Short term bond funds gave average return of 10.6% returns in 2014. Investors should note that short term bond funds carry some amount of interest rate risk, even though the risk is on the lower side compared to income funds or gilt funds. The chart below shows the annual returns of short term funds from 2012 to 2014.
