* This is not an investment advice and aims for information sharing only.
About: 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.