The time horizon:
If you as an investor, are looking forward towards a short-term time horizon, then a short-term bond fund or a money market fund, preferably a liquid fund, would be ideal, as the capital would be protected and you can enjoy current income without being bothered by the daily fluctuations of the bond market. If you are looking forward a longer time horizon say for a year and more, with the willingness for managing a higher risk appetite, then a long-term fund like an income fund or a gilt fund would be ideal.
Risk appetite:
If you have a conservative risk appetite and abjure excessive risks, seek capital protection and steady income, then a short-term fund would be suitable. Funds under this category would be money market funds, ultra short-term and short-term bond funds which invest in short maturity corporate bonds. On the other hand, an investor who seeks long term capital growth through the strategic movement in interest rates and bond yields should aggressively invest in long-term bond and gilt funds.
Investment objective:
If your investment objective is to finance your home loan or a car loan repayment in the next 3-5 years, then a short term debt fund is more beneficial since its maturity period will be at the time you want funds to be made available to you. If you financial requirements are to be met in the long term then long term debt investments is what is advised.
Investors would do themselves a great service if they list out their preferences and objectives and then make an informed decision before investing their hard-earned money.