Best Ultra Short Term Funds

The table below shows a list of the Best Ultra Short Term Funds Based on AUM, NAV, and minimum SIP.

Introduction to Best Ultra Short Term Bond Funds

HDFC Ultra Short Term Fund

HDFC Ultra Short Term Fund Direct-Growth is an Ultra Short Duration mutual fund scheme from HDFC Mutual Fund. This fund has been in existence for 6 years, having been launched on 18/09/2018.

HDFC Ultra Short Term Fund Direct-Growth as a short-duration debt fund, manages assets valued at ₹15,129.33 crore. Over the past 5 years, it has achieved a Compound Annual Growth Rate (CAGR) of 6.02%. This fund has no exit load and an expense ratio of 0.37%. According to SEBI, it falls under the moderate-risk category. The fund’s asset allocation comprises: No Equity, Debt – 95.97%, and Other – 4.03%.

ICICI Pru Ultra Short Term Fund

ICICI Prudential Ultra Short Term Fund Direct-Growth is an Ultra Short Duration mutual fund scheme from ICICI Prudential Mutual Fund. This fund has been in existence for 11 years and 8 months, having been launched on 01/01/2013.

ICICI Prudential Ultra Short Term Fund Direct-Growth as a short-duration debt fund, manages assets valued at ₹14,967.80 crore. Over the past 5 years, it has achieved a Compound Annual Growth Rate (CAGR) of 6.46%. This fund has no exit load and an expense ratio of 0.39%. According to SEBI, it falls under the moderate-risk category. The fund’s asset allocation comprises: No Equity, Debt – 93.02%, and Other – 6.98%.

Aditya Birla SL Savings Fund

Aditya Birla Sun Life Regular Savings Fund Direct-Growth is a Conservative Hybrid mutual fund scheme from Aditya Birla Sun Life Mutual Fund. This fund has been in existence for 11 years and 8 months, having been launched on 01/01/2013.

Aditya Birla Sun Life Regular Savings Fund as a short-duration debt fund, manages assets valued at ₹13,722.28 crore. Over the past 5 years, it has achieved a Compound Annual Growth Rate (CAGR) of 6.24%. This fund has no exit load and an expense ratio of 0.34%. According to SEBI, it falls under the moderate-risk category. The fund’s asset allocation comprises: Equity –  22.1%, Debt – 72.35%, and Other – 5.55%.

SBI Magnum Ultra Short Duration Fund

SBI Magnum Ultra Short Duration Fund Direct-Growth is an Ultra Short Duration mutual fund scheme from SBI Mutual Fund. This fund has been in existence for 11 years and 8 months, having been launched on 01/01/2013.

SBI Magnum Ultra Short Duration Fund as a short-duration debt fund, manages assets valued at ₹13,220.09 crore. Over the past 5 years, it has achieved a Compound Annual Growth Rate (CAGR) of 5.78%. This fund has no exit load and an expense ratio of 0.31%. According to SEBI, it falls under the moderate-risk category. The fund’s asset allocation comprises: No Equity, Debt – 95.94%, and Other – 4.06%.

Kotak Savings Fund

Kotak Savings Fund Direct-Growth is an Ultra Short Duration mutual fund scheme from Kotak Mahindra Mutual Fund. This fund has been in existence for 11 years and 8 months, having been launched on 01/01/2013.

Kotak Savings Fund Direct-Growth as a short-duration debt fund, manages assets valued at ₹12,644.15 crore. Over the past 5 years, it has achieved a Compound Annual Growth Rate (CAGR) of 5.92%. This fund has no exit load and an expense ratio of 0.36%. According to SEBI, it falls under the moderate-risk category. The fund’s asset allocation comprises: No Equity, Debt – 101.89%, and Other – (-1.89)%.

Nippon India Ultra Short Duration Fund

Nippon India Ultra Short Duration Fund Direct-Growth is an Ultra Short Duration mutual fund scheme from Nippon India Mutual Fund. This fund has been in existence for 11 years and 8 months, having been launched on 01/01/2013.

Nippon India Ultra Short Duration Fund as a short-duration debt fund, manages assets valued at ₹7,291.01 crore. Over the past 5 years, it has achieved a Compound Annual Growth Rate (CAGR) of 6.94%. This fund has no exit load and an expense ratio of 0.38%. According to SEBI, it falls under the moderate-risk category. The fund’s asset allocation comprises: No Equity, Debt – 97.51%, and Other – 2.49%.

Axis Ultra Short Term Fund

Axis Ultra Short Term Fund Direct-Growth is an Ultra Short Duration mutual fund scheme from Axis Mutual Fund. This fund has been in existence for 6 years, having been launched on 27/08/2018.

Axis Ultra Short Term Fund as a short-duration debt fund, manages assets valued at ₹5,949.05 crore. Over the past 5 years, it has achieved a Compound Annual Growth Rate (CAGR) of 6.12%. This fund has no exit load and an expense ratio of 0.36%. According to SEBI, it falls under the moderate-risk category. The fund’s asset allocation comprises: No Equity, Debt – 98.55%, and Other – 1.45%.

Bandhan Ultra Short Term Fund

Bandhan Ultra Short Term Fund Direct-Growth is an Ultra Short Duration mutual fund scheme from Bandhan Mutual Fund. This fund has been in existence for 6 years 2 m, having been launched on 06/07/2018.

Bandhan Ultra Short Term Fund as a short-duration debt fund, manages assets valued at ₹3,744.87 crore. Over the past 5 years, it has achieved a Compound Annual Growth Rate (CAGR) of 5.68%. This fund has no exit load and an expense ratio of 0.27%. According to SEBI, it falls under the moderate-risk category. The fund’s asset allocation comprises: No Equity, Debt – 85.53%, and Other – 14.47%.

HSBC Ultra Short Duration Fund

HSBC Ultra Short Duration Fund Direct-Growth is an Ultra Short Duration mutual fund scheme from HSBC Mutual Fund. This fund has been in existence for 4 years and 8 months, having been launched on 14/01/2020.

HSBC Ultra Short Duration Fund as a short-duration debt fund, manages assets valued at ₹3,384.84 crore. Over the past 3 years, it has achieved a Compound Annual Growth Rate (CAGR) of 6.17%. This fund has no exit load and an expense ratio of 0.21%. According to SEBI, it falls under the moderate-risk category. The fund’s asset allocation comprises: No Equity, Debt – 98.09%, and Other – 1.91%.

DSP Ultra Short Fund

DSP Ultra Short Fund Direct Plan-Growth is an Ultra Short Duration mutual fund scheme from DSP Mutual Fund. This fund has been in existence for 11 years and 8 months, having been launched on 01/01/2013.

DSP Ultra Short Fund Direct Plan-Growth as a short-duration debt fund, manages assets valued at ₹2,845.84 crore. Over the past 5 years, it has achieved a Compound Annual Growth Rate (CAGR) of 5.74%. This fund has no exit load and an expense ratio of 0.3%. According to SEBI, it falls under the moderate-risk category. The fund’s asset allocation comprises: No Equity, Debt – 98.98%, and Other – 1.02%.

What Are Ultra Short Term Funds?

Ultra short-term funds are mutual funds designed to invest in short-duration debt instruments, typically with maturities ranging from a few months to a year. They aim to offer better returns than traditional savings accounts while maintaining low risk.

These funds invest in high-quality, short-term securities such as commercial papers, certificates of deposit, and Treasury bills. The primary objective is to provide liquidity and preserve capital while generating modest returns.

Investors use ultra short-term funds to park surplus cash temporarily with minimal risk. They are a suitable option for conservative investors seeking stable returns with high liquidity and lower volatility compared to longer-duration funds.

Features of Best Ultra Short Term Funds India

The main features of the best ultra short-term funds in India include low interest rate risk, high liquidity, strong credit quality, and tax efficiency. These attributes help investors achieve stable returns while ensuring their capital is preserved and easily accessible.

• Low Interest Rate Risk: Best funds minimize exposure to interest rate fluctuations by investing in short-duration securities. This helps reduce potential losses due to rising interest rates, ensuring more stable returns.
• High Liquidity: These funds offer high liquidity, allowing investors to redeem their investments quickly without significant penalties. This feature is crucial for those needing quick access to their money.
• Strong Credit Quality: Investment in high-quality, creditworthy instruments is a key feature. These funds typically avoid lower-rated securities, minimizing default risk and enhancing overall stability.
• Tax Efficiency: Many ultra short-term funds offer tax benefits, such as lower capital gains tax rates, compared to other investment options. This can enhance net returns for investors over time.

Top Ultra Short Term Funds Based on Expense Ratio

The table below shows the Top Ultra Short Term Funds Based on the highest to lowest expense ratio.

Best Ultra Short Term Funds To Invest Based on 3Y CAGR

The table below shows the Best Ultra Short Term Funds Based on the Highest 3Y CAGR.

Best Ultra Short Term Funds In India Based on Exit Load

The table below shows Best Performing Ultra Short Term Funds In India Based on Exit Load, i.e., the fee that the AMC charges investors when they exit or redeem their fund units.

Ultra Short Term Funds Returns

The table below shows Ultra Short Term Funds Returns Based on 1Y return

Historical Performance of Ultra Short Term Funds India

The table below shows the Historical Performance of Ultra Short Term Funds based on 5Y return

Factors to Consider When Investing in Ultra Short Term Mutual Funds

The main factors to consider when investing in ultra short-term mutual funds include liquidity, risk, returns, and expense ratio. These funds offer lower risk compared to long-term options but still require careful evaluation of these key elements to align with investment goals.

• Liquidity: Ultra short-term mutual funds provide high liquidity, making it easier for investors to withdraw funds quickly when needed. This feature suits individuals seeking quick access to their capital for short-term financial requirements without facing significant penalties or restrictions.
• Risk: Though these funds are relatively low-risk compared to equity or long-term debt funds, they still carry some degree of credit and interest rate risk. Evaluating the fund’s portfolio quality helps mitigate exposure to securities with higher default risks.
• Returns: The returns on ultra short-term mutual funds are generally moderate but steady. They may outperform traditional savings accounts, making them an attractive option for investors seeking slightly better returns without taking on high risk.
• Expense Ratio: The expense ratio reflects the costs associated with managing the fund. A lower expense ratio can enhance returns, especially over time, so it’s important to compare this figure across different funds before making an investment decision.

How to Invest in Top Ultra Short Term Funds?

To invest in top ultra short-term funds, begin by researching funds that align with your financial goals. Compare different funds based on their risk, returns, and expense ratio. Utilize financial websites or platforms like Alice Blue to explore the available fund options.

Next, open an account with a brokerage firm like Alice Blue, which provides a simple process for mutual fund investments. Once registered, you can search for ultra short-term funds, analyze their performance history, and select funds based on your investment preferences.

Finally, make the investment online through Alice Blue by choosing the fund, specifying the amount, and confirming the transaction. Regularly monitor your investments and make adjustments if necessary to ensure your portfolio stays aligned with your short-term financial goals.

Impact of Market Trends on Ultra Short Term Funds

Market trends can impact ultra short-term funds, especially during periods of economic uncertainty. Rising interest rates, for example, may lead to lower bond prices, which could reduce the returns of these funds, though they are less sensitive than long-term funds.

During periods of market volatility, ultra short-term funds tend to remain relatively stable due to their lower exposure to riskier assets. However, sharp credit downgrades or defaults in the underlying securities may still affect the fund’s value.

Inflation trends also play a role. When inflation rises, ultra short-term fund returns may struggle to outpace the increased cost of living, reducing the real value of the returns for investors over time.

How Ultra Short Term Funds Perform in Volatile Markets?

In volatile markets, ultra short-term funds generally perform better than long-term debt or equity funds due to their lower risk exposure. They invest in short-duration instruments, which makes them less susceptible to market fluctuations and interest rate changes.

Despite their relative stability, these funds are not entirely immune to market volatility. Sudden changes in interest rates or credit downgrades in underlying securities can still impact their returns. However, the short maturity period of their holdings mitigates significant price fluctuations.

For risk-averse investors, ultra short-term funds provide a safer option during uncertain times. Their focus on capital preservation and liquidity allows investors to park funds with minimal risk, making them attractive in volatile financial environments.

Advantages of Investing in Ultra Short Term Mutual Funds

The main advantages of investing in ultra short-term mutual funds include capital preservation, liquidity, predictable returns, and lower interest rate sensitivity. These funds offer stability and accessibility, making them an attractive option for short-term financial planning and conservative investors.

• Capital Preservation: Ultra short-term mutual funds focus on preserving capital by investing in low-risk securities. They are ideal for conservative investors looking to avoid significant market volatility while maintaining their principal investment over a short period.
• Liquidity: One of the key benefits is high liquidity, allowing investors to redeem their investments quickly without lock-in periods. This makes these funds suitable for those needing immediate access to funds for short-term financial obligations.
• Predictable Returns: These funds generally offer more predictable returns compared to long-term debt or equity funds. They are less affected by market fluctuations, providing steady income to investors who prefer consistent returns over high-risk, high-reward investments.
• Lower Interest Rate Sensitivity: Ultra short-term funds are less sensitive to interest rate changes compared to long-duration bonds. As a result, they face lower price fluctuations, offering a stable investment option for those concerned about interest rate volatility impacting their portfolio.

Risks of Investing in Ultra Short Term Mutual Funds

The main risks of investing in ultra short-term mutual funds include credit risk, interest rate risk, liquidity risk, and inflation risk. While these funds are relatively low-risk, they are not entirely risk-free and require careful consideration of these factors before investing.

• Credit Risk: Even though ultra short-term funds invest in debt securities, there’s a chance that some issuers might default. Poor credit quality in the fund’s portfolio can lead to losses, affecting the fund’s performance and the investor’s capital.
• Interest Rate Risk: Ultra short-term mutual funds are sensitive to interest rate fluctuations, although less so than longer-term bonds. A sudden increase in interest rates can negatively impact bond prices, causing a dip in the fund’s value.
• Liquidity Risk: Although generally liquid, there may be instances when the fund’s assets become harder to sell due to market conditions. In such cases, the fund might struggle to provide immediate redemption, which could affect investors needing quick access to cash.
• Inflation Risk: Ultra short-term funds typically offer lower returns, which may not keep up with inflation. Over time, inflation can erode the purchasing power of the returns generated by these funds, limiting the real value of the investment.

Contribution of Ultra Short Term Funds to Portfolio Diversification

Ultra short-term funds contribute to portfolio diversification by offering stability and reducing overall risk. They act as a safe asset class, balancing higher-risk investments like equities, and helping to preserve capital during market volatility while still generating moderate returns.

Including ultra short-term funds in a diversified portfolio provides liquidity and flexibility. Their low-risk nature complements higher-risk assets, ensuring that short-term financial needs can be met without selling off long-term investments during unfavorable market conditions, enhancing portfolio resilience.

Who Should Invest In Ultra Short Term Mutual Funds?

Ultra short-term mutual funds are ideal for conservative investors seeking low-risk options with capital preservation and liquidity. Individuals looking for better returns than traditional savings accounts, while avoiding market volatility, may find these funds suitable for short-term financial goals.

They are also appropriate for those needing quick access to funds without facing high penalties. Investors with a short investment horizon, typically up to one year, can benefit from the steady returns and lower interest rate sensitivity these funds offer.

Impact of Fund Manager Expertise on Ultra Short Term Funds Performance

The expertise of a fund manager significantly impacts the performance of ultra short-term funds. A skilled manager can effectively assess credit risk, interest rate movements, and market conditions, selecting high-quality, short-duration instruments that enhance returns while minimizing potential losses.

Fund managers also play a key role in maintaining liquidity and optimizing portfolio turnover. Their ability to time investments, manage risks, and adjust to market fluctuations ensures the fund remains stable and delivers consistent performance, even in uncertain economic environments.

Ultra Short Term Funds Taxation

Ultra short-term funds are taxed as debt funds in India. If held for less than three years, the gains are treated as Short-Term Capital Gains (STCG) and taxed according to the investor’s applicable income tax slab rate.

For holdings exceeding three years, gains are considered Long-Term Capital Gains (LTCG) and taxed at 20% with indexation benefits. This allows investors to adjust their returns for inflation, reducing the overall tax liability and making these funds more tax-efficient for long-term investors.

FAQs – Best Ultra Short Term Funds In India

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