Ultra Short Duration Mutual Funds

Ultra Short Term Funds are a sub-category of debt funds, that invests in debt securities and money market instruments to maintain a portfolio Macaulay Duration of three to six months. These are open-ended, allowing investors the flexibility to deposit and withdraw funds at any time.

The primary objective of these funds is to deliver short-term returns while mitigating capital loss risks from interest rate fluctuations. By investing in shorter-maturity debt securities, they carry lower risk than long-term bonds or equity funds.

• Short Duration: These funds have maturities ranging from 3 to 6 months.
• High Liquidity: Due to their open-ended structure, these funds offer investors the flexibility to enter or exit at any point without lock-in periods.
• Low Risk Profile: Ultra-short-term funds allocate capital to stable debt instruments such as commercial papers, treasury bills, and government securities, which are relatively stable instruments and comparatively less volatile as compared to equity.

Ultra short-term funds work like any other mutual fund, where fund managers invest pooled capital from investors and invest it in debt and money market securities. These instruments usually mature within a period of a few months and fund managers buy and sell securities to maintain the average duration of 3-6 months of the ultra short term duration fund.

To achieve this, the fund manager selects specific debt securities and money market instruments aligned with the fund's defined investment goals.

You can invest in an ultra short-term mutual fund directly through the Paisabazaar platform. 

Step 1: Log in to the Paisabazaar app.
Step 2: Select the ‘Mutual Fund’ option on your dashboard.
Step 3: Browse and choose the most suitable large & mid cap fund based on your goals and risk appetite.
Step 4: Select the mode of investment - lump sum or SIP.
Step 5: Enter the investment amount.
Step 6: Complete your KYC verification to start investing.

Since ultra-short-duration funds belong to the debt mutual fund category, it is taxed exactly like a debt fund. Here are some important points to note on taxation on returns from these funds:

• Investments made on or after April 1, 2023: Capital gains are treate as short-term gains, regardless of how long the units are held. These gains are Added to the taxable income and taxed as per the investor’s income tax slab.
• Investments made before April 1, 2023: Long-term capital gains, applicable after a 12-month holding period for listed funds or 24 months for unlisted funds, are subject to a 12.5% tax rate. Short-term capital gains are taxed according to the investor's applicable income tax slab.