Financial Awareness Level
What is Ultra Short Term Mutual Fund Scheme?
Introduction
Ultra short term Mutual Fund Scheme is a category of debt schemes that invest in fixed-income instruments with a maturity period ranging from three to six months. These schemes offer a balance between liquidity and returns, making them a suitable choice for investors looking for short-term investment options with slightly higher yields than overnight or liquid schemes.
What is an Ultra Short Term Mutual Fund Scheme?
An ultra short term scheme primarily invests in Debt & Money Market instruments with Macaulay duration of the portfolio between 3 months - 6 months. The objective is to generate relatively stable returns while minimizing interest rate risk. These schemes are considered a step above liquid scheme in terms of return while maintaining a relatively low risk profile.
How Do Ultra Short Term Mutual Fund Scheme Work?
These schemes generally allocate investments in commercial papers, treasury bills, certificates of deposit, and corporate bonds with short durations. Fund managers actively manage the portfolio to optimize returns while maintaining liquidity. Since these scheme invest in short-maturity instruments, they experience lower volatility compared to longer-duration debt scheme.
Benefits of Ultra Short Term Mutual Fund Scheme
- Low Interest Rate Sensitivity: As the maturity period is short, they are less affected by interest rate fluctuations.
- High Liquidity: Investors can redeem their investments easily, making them a flexible option.
- Relatively Low Risk: They carry minimal credit and interest rate risk, making them safer than long-term debt schemes.
Risks Associated with Ultra Short Term Mutual Fund Scheme
- Credit Risk: While generally low, there is some exposure to lower-rated corporate bonds that may carry default risks.
- Market Risk: Fluctuations in the bond market can slightly impact the scheme’s Net Asset Value (NAV).
- Reinvestment Risk: Since investments mature quickly, the fund manager must reinvest frequently, which may impact returns if interest rates decline.
Who Should Invest in Ultra Short Term Mutual Fund Scheme?
- Those with a short investment horizon of three to six months.
- Conservative investors who prefer stability with limited exposure to market volatility.
Conclusion
Ultra short term Mutual Fund Scheme provide a well-balanced investment avenue for those looking for relatively better returns while maintaining liquidity and stability. These schemes are ideal for conservative investors or those looking to park surplus cash for a short duration without taking significant risks.
Additional link:
What is a Mutual Fund? - Beginner's Guide to Investing
AMFI - Introduction to Mutual Funds
Here’s what you need to know about Ultra-Short Duration Funds
What are the different types of Debt Funds?
FAQ Section
What are Ultra Short Term Mutual Fund Schemes?
Ultra short term Mutual Fund Scheme is a category of debt scheme that invest in fixed-income instruments with a maturity period of three to six months, offering a balance between liquidity and returns.
Are Ultra Short Term Mutual Fund Scheme safe?
These schemes carry low risk due to their short maturity period and focus on high-quality debt instruments. However, they are not entirely risk-free as they are subject to credit risk and interest rate fluctuations. You are recommended to seek advice from financial advisor, for better understanding.
What are the key benefits of investing in Ultra Short Term Mutual Fund Scheme?
- Low sensitivity to interest rate changes.
- High liquidity, allowing easy withdrawal.
- Suitable for short-term investment goals.
What risks are associated with Ultra Short Term Mutual Fund Scheme?
- Credit Risk: Possibility of default by bond issuers.
- Market Risk: NAV fluctuations due to bond market movements.
- Reinvestment Risk: Lower returns if reinvestments happen at lower interest rates.
Who should invest in Ultra Short Term Mutual Fund Scheme?
Those with an investment horizon possibly for 3-6 months. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
Conservative investors seeking stable short-term returns.
How do Ultra Short Term scheme generate returns?
These schemes earn returns through interest payments from debt securities and potential capital appreciation if bond prices rise. Fund managers actively manage the portfolio to optimize yields.
Can Ultra Short Term Mutual Fund Scheme be used for emergency savings?
Yes, they may be one of the options for emergency savings due to their liquidity and relatively stable returns. However, investors should consider liquid scheme if they need instant access to funds. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)
How are Ultra Short Term Mutual Fund Scheme taxed?
Returns are taxed based on the investor's income tax slab if withdrawn within three years. For investments exceeding three years, they are taxed at 20% with indexation benefits. (You are recommended to seek advice from tax advisor for latest tax legislations before you take any/refrain from any action)
How do I invest in Ultra Short Term Mutual Fund Scheme?
Investors can invest through mutual fund platforms, financial advisors, or directly via asset management companies after completing the necessary KYC requirements.
Did you find this article Interesting?
1
2
3
4
5
Recommended For You
Beginner
What Are Multi-Cap Mutual Funds?
5 min read
Advanced
Key to Investing Wisely over a Long-term
5 min read
Advanced
How Mutual Funds Can Help Achieve Long-Term Life Objectives
5 min read
An Investor Education And Awareness Initiative
Visit https://www.hdfcfund.com/information/key-know-how to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website (www.sebi.gov.in/intermediaries.html). For any queries, complaints & grievance redressal, investors may reach out to the AMCs and / or Investor Relations Officers. Additionally, investors may also lodge complaints directly with the AMCs. If they are not satisfied with the resolutions given by AMCs, they may raise complaint through the SCORES portal on https://scores.sebi.gov.in/scores-home/. SCORES portal facilitates investors to lodge complaint online with SEBI and subsequently view its status. In case the investor is not satisfied with the resolution of the complaints raised directly with the AMCs or through the SCORES portal, they may file any complaint on the Smart ODR on https://smartodr.in/login.
The information is for general purposes only and not an investment advice. Readers should seek professional advice before taking any investment related decisions.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY
