Ultra Short Duration Fund – Features and Taxation in 2023

Ultra Short Duration Fund – Features and Taxation in 2023 | Max Life Insurance (2024)

Who Should Invest in Ultra Short Duration Funds?

Ultra Short Duration Funds have historically offered slightly higher returns than bank savings and fixed deposit accounts over corresponding investment tenures. This is primarily because these schemes can take advantage of short-term economic changes by investing in various bonds and money market instruments. Additionally, they have a short Macaulay duration of 3 to 6 months, so the overall interest rate risk is also limited to some extent.

As a result of the above unique features, ultra short term funds are considered suitable for short-term investors who want to benefit from high liquidity, movement of market interest rates while ensuring minimal risk to the principal amount invested. This is one of the key reasons while many investors invest a portion of their emergency funds in ultra short term funds.

Frequently Asked Questions(FAQs)

Q1. Do ultra short duration funds offer assured returns?

No. Returns from ultra short term funds are dependant on market performance of their underlying money market and debt investments so returns from these schemes is not assured or fixed. So Net Asset Value (NAV) for these schemes is liable to fluctuate from time to time.

Q2. What is the lock-in period for ultra-short-term mutual funds?

Typically ,there is no lock-in period for ultra-short-term mutual funds. You are freely invest in and withdraw funds from these schemes as per your requirement.

Q3. Why should you put money into a ultra-short duration mutual fund?

While limiting overall investment risk, these schemes have historically offered higher returns than fixed deposits and recurring deposits of corresponsing investment periods. So investors with relatively low risk tolerance who wish to park their money for a period between 6 to 12 months, should consider investing in ultra short duration funds.

Q4. Do short-term investment funds have entry and exit loads?

As per SEBI guidelines, entry load have been abolished in India for all mutual funds. Additionally while most ultra short duration schemes do not have exit loads, the fund house at its discretion may decide to apply it on a fund by fund basis.

Q5. Can I invest systematically in Ultra Short Duration Funds?

Yes. You can invest in ultra short duration funds systematically through a systematic investment plan or make lumpsum investments in these schemes as per your unique investment needs.