Invest in Best Ultra Short-Term Mutual Funds in India 2025
Discover the best ultra-short-term mutual funds in India for 2024. Learn who must invest, benefits, risks, and what the benefits are.
What are Ultra Short-Term Mutual Funds?
Ultra short-term mutual funds are a type of debt fund that invests in fixed-income securities with very short maturities, typically ranging from a week to 18 months. These funds are designed to provide a higher return than liquid funds while reducing the risks associated with it.
Who Should Invest in Ultra Short-Term Mutual Funds?
- Short-Term Investors: Individuals looking to park their money for a short period, typically ranging from a week to 18 months
- Risk-Averse Investors: Those who prefer lower risk but want higher returns can opt for this kind of funds
- Corporate and Institutional Investors: Businesses seeking to manage their surplus funds efficiently can chose to invest in these funds
- Individuals Seeking Better Returns: Those looking for better returns compared to liquid funds with less risk can opt for this fund
Top 5 Ultra Short Mutual Funds
| Fund Name | Category | Risk | 6 Months Return (%) | 1-Year Return (%) | Rating | Fund Size (Crores) |
|---|---|---|---|---|---|---|
| Baroda BNP Paribas Ultra Short Fund | Ultra Short Fund | Low to Moderate | 3.71% | 7.28% | ₹1031 | |
| HSBC Ultra Short Duration | Ultra Short Fund | Low to Moderate | 3.70% | 7.18% | ₹2688 | |
| Bandhan Ultra Short Duration | Ultra Short Fund | Low to Moderate | 3.71% | 7.19% | ₹3935 | |
| SBI Magnum Ultra Short Duration | Ultra Short Fund | Moderate | 3.69% | 7.18% | ₹10548 | |
| Canara Robeco Short Duration | Ultra Short Fund | Low to Moderate | 3.36% | 6.52% | ₹4517 |
Factors to Consider While Investing in Ultra Short-Term Mutual Funds
- Risk: Unlike other funds, these funds are immune to interest rate risks. However, when compared to liquid funds, ultra-short funds are riskier
- Return: NAV of the fund tends to fall with a rise in the interest. Hence, it is more suited for falling interest times
- Expense Ratio: Lower expense ratios and longer holding period can lead to better net returns off-setting the amount gone out because of interest fluctuations.
- Liquidity: Ensure that the fund provides very high liquidity with minimal exit loads or restrictions.
- Fund Manager’s Expertise: The experience and track record of the fund manager matters the most in generating returns
Major Benefits of Ultra Short-Term Mutual Funds
- Higher Returns than Liquid Funds: Offers potentially higher returns than liquid funds while maintaining low risk. Ideal for investors with lower risk ability
- High Liquidity: Allows investors to withdraw their money quickly, in most cases less than 24 hours from placing a request
- Interest rate volatility: It can offset the risks from interest rate volatility thanks to macaulay duration
- No exit load: Typically, these funds do not have any exit load. Still one must check this factor before proceeding to invest
- Short term goal fulfilling: Investors who are looking for ways to fulfil their short term goals can opt for this fund
Risks Involved in Ultra Short-Term Mutual Funds
- Interest Rate Risk: Ultra short-term funds are sensitive to interest rate changes, though to a lesser extent than longer-duration funds.
- Tax: Any gains from this fund can be chipped in the form of taxes. Capital gains are subject to taxes in India. If the period of gains is upto 3 years, the investors will have to STCG and any period more than that will attract LTCG. LTCG is taxed at 20%
- Market Risk: Subject to market fluctuations, although to a much lesser extent than equity funds.
FAQ for Ultra Short Funds
- What is the investment horizon for these type of Funds?
The investment period for ultra-short funds ranges from 1 month to 18 months
- Are there any lock-in period for this fund?
There are no lock-in periods for this fund. But to fetch real profit, you aai
- Who should invest in ultra short-term mutual funds?
These funds are suitable for short-term investors, risk-averse individuals, corporate and institutional investors
- Does this fund have an exit load?
No, these funds do not have any exit load. Still, it is important to read the offer documents carefully before investing
