An Insight on Ultra Short Duration Funds

Numerous investors park their money into debt funds without a thorough knowledge of their features and performance. Before you make an investment decision, it is important to know everything about the fund, which you are planning to select for investment. One such fund, which you should have good awareness about, is an ultra-short duration fund.

What is an ultra-short duration fund/ultra-short-term debt fund?

An ultra-short duration fund is like a liquid fund. However, its investment period has no restrictions.

In case of these short-term debt funds, the fund can invest into securities, which mature in a week to the ones that mature in a year and a half. There is no investment horizon, which the funds need to follow.

Why should you invest?

Ultra short duration funds can be used to meet your short-term and long-term needs. It also helps in the diversification of the investment portfolio.

In addition, these funds help you earn a little more than liquid funds. As these funds have no investment tenure, you can choose the period for which you want to remain invested.

Who should invest?

Investors who have a specific investment period in mind can choose these funds. If you want to invest your money, for a period of nine months, these funds are for you.

Moreover, the risk associated with the fund is low; hence, investors with a low-risk appetite can make a wise decision by investing in these funds.

Is there any tax liability?

Capital gain on the investment is taxable. The rate of tax will vary according to the investment period.

In the case of short-term capital gain, the gain will be added to your income and you will be taxed according to the normal tax slab. In the case of long-term capital gain, there will be a tax liability of 10% without indexation and 20% with indexation.

Things to consider while investing

Consider your investment horizon before you choose a fund. Based on the same, you can pick the right fund.

Additionally, keep your risk appetite in mind when choosing the fund. There is a low risk associated with these funds; however, compared to liquid funds, these funds are slightly risky.

If you want no risk with your investment, this fund is not for you. The funds can help you diversify your portfolio, hence, consider your long-term goals and then make a decision.

How should you select this fund?

There are various debt funds available in the market. To choose the right fund for investment, you need to compare the performance of the funds over a period.

Compare the past performance and the returns. If all factors fall into place, you can expect a return of 7%-9% on the same. Choose a fund that has performed well even during volatile markets. Since they have a short maturity period, they are immune to interest rate risk.

Shortlist the top funds available in the market and compare them in terms of expected returns and past performance before you make an investment decision.

What are the best ultra-short duration funds?

We have listed down few of the best ultra-short duration funds that you can think about investing. For more details, set-up your account and talk to our financial advisor today:

• SBI Magnum Ultra Short Duration Fund Growth
• Reliance Ultra Short Duration Fund Growth
• DHFL Pramerica Ultra Short Term Fund Growth
• ICICI Prudential Ultra Short Term Fund Growth
• L&T Ultra Short Term Fund Growth

Common mutual funds investment mistakes

To ensure the investments you make help you toward a financially secure future, you must avoid certain investment mistakes that a lot of newcomers end up making. Mistakes such as:

Fear of Missing Out:

Never invest in schemes on a notion of “others are investing” or just because “market is Up”. Before taking any decision you have to do research, lay down your investment plan and understand the best possible schemes that will help you achieve your goals and help you grow your investments.

Chasing High Returns:

Best way first-time investors start their investment planning is by sorting the top mutual fund schemes in the order of higher returns. You have to do your research to understand how different mutual funds schemes work and not just select a scheme based on their past performance.

To read the entire list of common mistakes that you should avoid, check out 10 mistakes to avoid while investing in mutual funds.

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