KNOWLEDGE CENTRE Debt Funds / What Are Ultra-Short Term Debt Funds?

What Are Ultra-Short Term Debt Funds?

Investors prefer mutual funds due to the high returns and low risk associated with them. But not many investors are aware of the different types of funds and its features. In order to maximize wealth, it is important for them to lay out a long-term financial plan and invest according to the tenure and individual risk appetite.

Ultra-short-term funds are debt funds where fund managers invest the amount in corporate bonds, commercial papers, certificates of deposits, and treasury bills. The tenure for the same is short ranging from three months to a year. Investors need to understand the features of the fund before they make an investment decision.

What Are The Advantages Of Ultra-Short Term Debt Funds?

It is ideal to invest in ultra-short-term funds only if you are aware that you might not need the money in the next two or three months. Consider it as a contingency fund for unforeseen events and invest it into short-term funds until you need to use it. Make sure you do a thorough research or consult a financial advisor to gain detailed information about the performance of the fund in the long term. Even though you are investing for a short term, you need to ensure that the fund is performing well and has generated higher returns in the past.

What Are The Returns Of Ultra-Short Term Debt Funds?

The funds earn interest accrued on investment. Its returns are higher than a savings bank interest as well as returns generated on liquid funds, which is one reason why it is preferred by investors. Since the returns are higher, the risk will also be on the higher side. If you seek high returns in a short duration, you may invest in debt funds online and manage your portfolio without much hassle.

What Are The Taxes On Ultra-Short Term Debt Funds?

The tax implication for liquid funds as well as ultra-short-term funds is very similar. Any short-term gain will be treated as per the tax slab whereas any long-term gain will be taxed at 20% with indexation benefit.

How To Invest In Ultra-Short Term Debt Funds?

As the name suggests, the funds are for a short period. Ultra-short-term funds invest in securities that carry a maturity period of 91 days or more. They are ideal if you want to park your excess money where you can earn an interest on it, or if you want to invest in a higher return instrument using a lumpsum amount but in an SIP format.

Are Ultra-Short Term Funds The Right Investment Choice For You?

When it comes to choosing an investment avenue, it is advisable for you to make decisions based on your long-term financial plan. Based on the long-term financial plan, the goals should be divided into short-term, medium-term and long-term. In order to achieve the short-term goals which will yield higher returns in comparison to a saving bank account, you may choose to invest in ultra-short-term funds.

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