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Maximizing short-term gains: A comprehensive guide to ultra short term funds


Ultra short term funds or ultra short duration funds are debt funds. They are a type of fixed-income mutual fund scheme. These funds largely invest in debt securities with very short maturities. They have a short maturity period, usually less than a year. Typically, it takes weeks to 18 months. 

This short duration makes it an attractive option for investors seeking low-risk mutual fund options. Ultra Short Term Funds offer better returns than savings accounts without compromising on liquidity. As these investments are for a short time, they are less affected by interest rate fluctuations, which greatly reduces the risk of investments.

What are ultra short term funds?

Ultra Short Term Funds are best for investors who want low risk and good returns in a short time. This fund invests in high-quality debt securities and money market instruments with maturities of less than one year. 

The fund’s strategy focuses on minimizing risk through diversified investments in the debt market, aiming to provide stable returns in the short term.

Benefits of investing in ultra short duration funds

There are many benefits to investing in Ultra Short Duration Funds. These funds especially benefit cautious investors who value consistency and liquidity. These funds are designed to lower the risk of interest rate fluctuations, thus making them a safer option in unpredictable markets. Some other benefits of Ultra Short Duration Funds are:

  1. Risk mitigation in volatile markets:

Ultra Short Duration Funds reduce the risk of interest rate fluctuations and offer a safe haven during market volatility.

For example, the SBI Ultra Short Duration Fund has shown good stability. With a current NAV of INR 2,215, it showcases an average growth rate (AGR) of around 6.5% annually. This fund maintains a low exit load which makes it an attractive option for investors.

  1. Enhanced Liquidity for Investors:

These funds stand out for their liquidity and let you withdraw your funds without hefty penalties like other investment types. The Axis Ultra Short Term Fund reflects this advantage. Its NAV is INR 2,324 and has an impressive AGR of 7% over the past year. Its exit load is negligible for redemptions within a short period.

  1. Potential for higher returns:

Unlike traditional savings, Ultra Short Duration Funds offer good returns. The ICICI Pru Ultra Short Term Fund is a good example. With an NAV of INR 3,406 and an AGR of 7.2%, it significantly outpaces average savings account rates. The fund’s exit load is very low. Thus, it becomes a good choice for investors looking for greater returns without taking on a lot of risk.

  1. Ideal for emergency funds:

The liquidity and safety of these funds make them perfect for emergency savings. The Kotak Savings Fund, with an NAV of INR 3,009 and an AGR of 6.8%, proves to be a reliable option. It features no exit load for withdrawals. Thus, it becomes an excellent option as an emergency fund.

  1. Simplicity and accessibility:

These funds appeal to a wide variety of investors by providing a simple investment and redemption process. The HDFC Ultra Short Term Fund shows this with a NAV of INR 4,210 and an annual growth rate of 7.1%. Its exit load structure is designed to encourage short-term holdings, making it accessible for investors at all levels.

A comparison: Ultra short term funds vs. ultra short term debt funds

When you plan to invest in mutual funds, it’s good to know the different options available. A common question investors ask is the difference between Ultra Short Term Funds and Ultra Short Term Debt Funds. If you too were looking for a simple answer, then we have made it clear here.

  1. Investment focus:

Ultra Short Term Funds invest in a mix of debt and money market instruments with a short maturity period, usually less than a year. Whereas Ultra Short Term Debt Funds focus more narrowly on debt securities with a slightly longer maturity than those targeted by money market funds. 

For example, the Reliance Ultra Short Duration Fund invests in a diversified portfolio with an average maturity of 6 to 12 months, aiming for optimal returns with low risk.

  1. Risk profile:

Both fund types are low-risk when compared to long-term investment options. However, Ultra Short Term Debt Funds carry a slightly higher interest rate risk due to their longer maturity securities.

  1. Return Potential:

The return on Ultra Short Term Funds can vary more than that on Ultra Short Term Debt Funds due to their broader investment scope.

  1. Liquidity:

Both types offer high liquidity, but Ultra Short Term Funds provide slightly better liquidity due to their investment in shorter-maturity instruments. 

  1. Suitability:

Ultra Short Term Funds are ideal for investors who are looking for short-term investments with better returns than savings accounts without much risk. Whereas Ultra Short Term Debt Funds are good for people who want a bit more return but have a similar risk profile.


In the investment world, understanding the differences between fund types is important for building a portfolio that meets your financial goals and risk level. Ultra Short Term Funds are a great choice for people who want safe, easily accessible investments with the chance of earning more than what’s typically offered by savings accounts. It’s ideal for handling short-term money needs while keeping market risks low.

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What are the tax implications for investments in Ultra Short Term Funds?

Investing in Ultra Short Term Funds can have tax implications. You may need to pay tax on interest income and capital gains. Investors need to understand how these taxes apply based on their investment period and income bracket.

Can Ultra Short Term Funds be used as part of a diversified investment strategy?

Yes, mixing Ultra Short Term Funds into a diversified investment strategy can help balance risk and return. It’s good for investors looking to allocate a portion of their portfolio to lower-risk assets while maintaining liquidity.

How do Ultra Short Term Funds compare with Fixed Deposits in terms of returns and flexibility?

Ultra Short Term Funds often offer comparable or slightly higher returns than fixed deposits. It also has the added benefits of higher liquidity and flexibility in terms of withdrawals without penalty. This makes it an attractive alternative for short-term investments.

What role do credit ratings play in the performance of Ultra Short Term Funds?

The credit ratings of the short term securities within an Ultra Short Term Fund’s portfolio are important. Higher-rated securities generally indicate lower risk. Investors should consider the credit quality of a fund’s holdings to calculate its risk level.

How quickly can I access my investment in an Ultra Short Term Fund if needed?

One of the main benefits of Ultra Short Term Funds is their liquidity. It lets investors access their funds within a few business days. This makes them a suitable option for people looking for quick access to their investments for unforeseen expenses or short-term financial needs.

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