Short term funds mainly invest in Commercial Papers, Certificate of Deposits, Money Market Instruments, etc. The average maturity period of a short-term fund is usually between six months to 12 months. They may provide a higher level of return than ultra-short-term and liquid funds but will be exposed to higher risks.

Interest rates and prices of the debt instruments have an inverse relationship. This means they move in opposite directions. For example, a falling interest rate is good for debt mutual funds. When interest rates fall, the bond prices go up and it will boost NAVs of the debt mutual fund schemes.  The risk of losing the capital and the interest on the investment is credit risk. Instruments with lowest credit rating will have the highest credit default risk and will certainly give higher yields.