Ultra short-term funds are a type of Mutual Fund in the debt funds category that invest in fixed rate and fixed income earning papers with a maturity of up-to 6 months.
Reasons to Invest
- For higher return alternatives to FD/RD, savings accounts or liquid funds
- To invest idle surplus lying in savings account
- To park money for emergency fund or short term requirements
- Where liquidity is important and do not want to get locked in a FD
- Conservative investors wanting to take long term taxation benefit (>3 years in debt funds)
- To store money in a debt fund and invest in equity fund through STP
Taxation
Need to pay taxes only when you redeem. Post 3 Years, indexation benefit might make the return from these funds almost tax-free.
Risk to return
- These funds give you the opportunity or offer a possibility to earn higher returns compared to traditional FDs, savings account or liquid funds.
- Risk spread across different papers as opposite to single bank Issuer risk in FDs.
- Negligible credit risk. (as maturity duration is upto 6 months only)
- Higher risk-adjusted returns than liquid funds.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute professional advice. While full efforts have been made to ensure the accuracy of data and numbers, no responsibility is taken for any errors or omissions. Tax implications on insurance, investments and returns from related products may change due to updates in tax laws. Always consult with your financial advisor or insurance expert before making any investment or insurance decisions. The author is not responsible for any financial losses or damages incurred as a result of relying on the information in this blog.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully. The NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market including the fluctuations in the interest rates. The past performance of the mutual funds is not necessarily indicative of future performance of the schemes. Mutual Fund is not guaranteeing or assuring any dividend under any of the schemes and the same is subject to the availability and adequacy of distributable surplus. Investors are requested to review the prospectus carefully and obtain expert professional advice with regard to specific legal, tax, and financial implications of the investment/participation in the scheme.
