Short duration fund: Should you invest in it?

So what are these short duration funds? So as per the SEBI (Securities and Exchange Board of India) Short duration funds are those funds which invest in debt and money market instruments such that the Macaulay duration of the portfolio is between one year to three years. Looking at this we can say that these are indeed for investments which are for short-term time horizon.
 
Now the question would be what is Macaulay duration? Macaulay Duration measures the price volatility of fixed income securities. It is often used in the comparison of interest rate risk between securities with different coupons and different maturities. It can be defined as the weighted average time to cash flows of a bond where the weights are nothing but the present value of the cash flows themselves. It is expressed in years. The duration of fixed income security is always shorter than its term to maturity, except in the case of zero coupon securities where they are the same.
 
Let us look at their performance to understand how they have fared. If we look at the average 1 month, 3 month, 6 month, 1 year and 3 year returns then they stand as 0.69 per cent, 2.40 per cent, 3.60 per cent, 6.30 per cent and 7.10 per cent, respectively. If we look at the best performance in 3 year period, it is 8.66 per cent and if we look at the worst performance, it is 4.80 per cent. However, returns must not be the only parameter to judge the performance. So before investing it is advisable to also consider other parameters like the securities that they are investing in, fund manager’s style of investing and his experience, credit rating of individual securities they are investing in, average maturity days or year(s), etc.
 
So should you invest in short duration funds? Frankly speaking, it depends on your individual requirements. If you require funds or wish to save for the period of 1 year to 3 years, then this can prove to be a better option. However, it is also dependent on your risk appetite. So if you are someone who carries a conservative attitude while investing then go for the short duration funds. But if someone is an aggressive risk taker you can also have a look at credit risk funds for the same time horizon.