Ultra short-term funds, a safe choice for conservative investors | Fusion - WeRIndia

Ultra Short Term Funds are a type of mutual fund focusing on debt securities and money market instruments with a duration of three to six months.

They are an attractive choice for conservative investors who look to meet specific financial goals within that timeframe.

Moreover, they are considered low-risk investments. Yet, these funds offer average returns between 7% and 9%.

Ultra short term funds provide a balanced approach for investors seeking higher returns than liquid funds while still prioritizing capital preservation. These funds offer both stability and predictability, aiming to grow the wealth of investors over a short period.

Here are some of the advantages of ultra short term funds:

• Ultra short term funds primarily consist of high-quality debt instruments and money market assets.
• As these funds focus on a short investment period of 3 to 6 months, they minimize the effects of interest rate fluctuations. Besides, these funds enhance stability compared to longer-term investments.
• They follow a conservative strategy, offering slightly better returns than standard savings accounts. Investors can yield returns mainly from interest income as well as capital appreciation of the securities.
• Investing in mutual funds involves taxation on any capital gains realized. The applicable tax rate depends on the holding period of the investment.
• Short-term capital gains are integrated into the investor’s total income and taxed at their respective marginal tax rate.
• Conversely, long-term capital gains are taxed at a specialized rate: 20% with indexation benefits and 10% without such adjustments.

While investing in these funds, please note the following things:

• The fund actively modifies its allocation of instruments and duration in response to current market conditions.
• Given market expectations of peak policy rates, tenor spreads continue to be appealing. The fund is strategically placed to seize attractive market yields and instrument spreads.
• With system liquidity anticipated to stay within a certain range, active management aims to capitalize on roll-down opportunities and generate alpha. The fund is strategically positioned to benefit from ensuing market trends.

Ultra Short Term Funds offer a balanced mix of low risk and decent returns, making them a solid choice for conservative investors looking for stability and moderate growth.

Image by Mohamed Hassan from Pxhere (Free for commercial use / CC0 Public Domain)

Image Published on August 26, 2018

Image Reference: https://pxhere.com/en/photo/1447513