Short-duration funds (SDF) invest in short term debt securities in such a way that the entire portfolio's Macaulay duration remains 1-3 years. SDF are likely to deliver better returns across rate cycles. They mainly generate income from accruals and capital gains from short-duration calls. In a rising interest-rate scenario, short-duration strategy reduces volatility. The proceeds of the short-maturity papers can be redeployed in bonds with higher yields. This will improve the fund's performance. In falling rate environment, its duration play helps to generate income from capital appreciation. Three SDF schemes are part of MC30, a Moneycontrol' handpicked list of investment worthy mutual fund schemes.