Debt funds have always catered to the likes of conservative investors who are hesitant to invest in high-risk mutual funds. With 16 categories of debt funds available, investors can choose the fund which is best suited to their investment plans. If you have some extra cash and you want to invest them but for a shorter time period, Ultra Short Term Funds can be a good option for you. These funds are perfect for people looking to invest in debt funds for a maximum of 6 months. Ultra short term funds invest in debt securities, such that the Macaulay Duration or the weighted average time that a bond needs to be held so that the present value of the cash received is equal to the current market price of the bond is three to six months.
|Fund Name||Risk||1 Year Returns||Fund Size|
|ICICI Prudential Ultra Short Term Fund||Moderate||4.6%||INR 11,835 crores|
|Axis Ultra Short Term Fund||Moderate||4.2%||INR 5,257 crores|
|Aditya Birla Sun Life Savings Fund||Moderate||4.4%||INR 15,541 crores|
|HDFC Ultra Short Term Fund||Low – moderate||4%||INR 13,808 crores|
|Kotak Savings Fund||Low – moderate||3.9%||INR 11,721 crores|
|SBI Magnum Ultra Short Duration Fund||Low – moderate||3.8%||INR 10,023 crores|
|Invesco India Ultra Short Term Fund||Low – moderate||3.9%||INR 860 crores|
|Tata Ultra Short Term Fund||Moderate||4.1%||INR 1,044 crores|
|IDFC Ultra Short Term Fund||Low – moderate||3.6%||INR 4,310 crores|
|L&T Ultra Short Term Fund||Low – moderate||3.7%||INR 1,920 crores|
*Returns are subjected to change.
Expected return rate (p.a)
Time Period (Years)
Ultra short term funds are perfect for people who don’t want to take high risks and invest in a debt fund for a shorter period of time (3 to 6 months). These funds generate better returns when compared to the interest generated by a savings account for the same time period. This makes Ultra short term funds a better option for investors to invest in debt funds for a short period of time.
These funds also offer liquidity and the returns are generally higher than other liquid funds. Ultra short term funds usually generate around 7 – 9 percent and are perfect to come equal to the inflation rate or beat it by inches for your short-term investment goals.
People who are clear about what they want from an investment generally tend to make wiser decisions when it comes to investing. This can be achieved through an analysis of their investment goals. Investors can use Ultra Short Term funds for short term investments. These investments will then fulfil the investor’s short term financial goals.
Performance Of The Fund Manager
It is very important to analyse the performance of the fund house or the manager across different categories of investments in order to understand their capability to maintain a consistent performance.
The risk appetite varies from investor to investor. Debt instruments and funds generally have a low-risk profile and thus generate minimum returns. However, there are some low-quality securities that generate higher returns resulting in credit risk. It’s crucial to be aware of such pitfalls.
The expense ratio is the fee that fund managers charge, to handle an investor’s mutual fund investments. While investing in a low-return fund like an ultra short term fund, it’s important to make sure you don’t pay more than what’s necessary to your fund manager. The Securities and Exchange Board of India (SEBI) has restricted the expense ratio to fall under 2% of returns, and having this piece of knowledge can help in wise investing.
Exit Load, as the name suggests, is a small fee collected by the Asset Management Companies at the time of an investor’s exit or redemption of fund units. Having an eye on the exit load at the time of investing can help you decide whether a particular fund is worth investing in or not.
Gains earned from investing in these types of funds are taxable under the debt fund taxation structure. The rate of taxation is computed based on how long you the investment was held (the holding period).
STCG (Short Term Capital Gains) – Profits made within three years of holding an investment are called short term capital gains, and are added to the investor’s income and taxed based on the bracket they fall under.
LTCG (Long Term Capital Gains) – Profits earned beyond three years of holding period are termed as long term capital gains and are taxed at the rate of 20% after indexation and 10% without the benefit of indexation. Indexation is nothing but the adjustment of the purchase price to reflect the effect of inflation.
While investors hold ultra short term funds only for 3 – 6 months, the fund managers hold them for longer periods of time for various investors, which is called the holding period in this case.
Also Read: Overnight Mutual Funds
So that was everything you needed to know about ultra short term funds. Investing is extremely easy nowadays. One can invest easily through mobile apps. With Navi, you not only have the benefits of investing in all types of funds including overseas but also avail countless other benefits like personal loans and home loans among others. Investors can invest in Navi mutual funds through platforms like Paytm money, Zerodha, and Groww to name a few. Managing your finances couldn’t be easier without Navi. Happy investing!
Ans: While you can directly invest in ultra short term mutual funds through apps like Navi, it’s advised to have a financial advisor if you’re a beginner.
Ans: While ultra short term funds are low-risk debt funds, they have credit risks, interest rate risks, and liquidity risks.
Ans: For short term capital gains, profits are added to the investor’s income and are taxed based on the tax bracket they fall in. For long term capital gains, profits are taxed at 20% with indexation and at 10% without indexation.
Ans: Three to six months.
Ans: While ultra short term funds generate returns to beat inflation, their gains are dropping by the day. Right now, it’s not advisable to invest in ultra short term funds to stay atop inflation.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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