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What are Ultra-Short Duration Debt Mutual Funds?


Ultra-short duration debt mutual funds are investments allocated in fixed-income schemes. These include government bonds, treasury bills, corporate bonds, and the like. The Macaulay duration of the scheme portfolio is between three to six months.

Since the securities have a short maturity period, the associated risks diminish to a large extent. These debt funds are less volatile and aim to produce more stable income than funds with a lengthier duration profile.

Who should buy ultra-short duration debt mutual funds?

Investors with an investment horizon of less than one year should invest in ultra-short-term funds. The level of risk is lower, making it suitable for conservative investors. Moreover, the returns are much higher compared to a regular savings bank account. First-time mutual fund investors can also start a SIP for ultra short-term funds.

It is vital to note that investments into ultra-short duration debt mutual funds do not assure returns or guarantee capital safety. You must be prepared for daily or weekly changes in prices. Nevertheless, if you can remain invested for more than three months, the chances of incurring a loss are lowered.

Additionally, credit risk influences these funds. Investors must take this factor into account before investing. The funds are tailormade for investors who want to tap into the opportunities offered by interest rate fluctuations and low yields.

Why should you invest in ultra-short duration funds?

Most investors have surplus funds that they do not need for the next 3 to 12 months. These funds are generally lying in the savings bank account. Investing in ultra-short funds helps to get potential returns from this surplus fund.

The savings bank interest rates for the private sector and PSU banks are between 2.75 to 3 percent. With ultra-short duration funds, investors can earn higher returns than the savings account interest rate.

Difference between ultra-short duration funds and liquid funds

Confusion between liquid funds and ultra-short duration funds is common. The major difference lies in the duration profile or maturity of the two funds. The Macaulay duration of ultra-short-term mutual funds is between 3 to 6 months, while the maturity for liquid funds invested in debt or money market securities is 91 days. Besides, the yield curve for ultra-short duration funds is mostly upward sloping.

The returns for ultra-short duration funds are generally higher than liquid funds. But, as the duration of these funds is longer than liquid funds, you will have to see more volatility on a daily or weekly basis. Thus, you must maintain an investment tenure of at least three months for ultra-short duration funds.


Before investing in any fund, you must analyze it from various perspectives. Use Tata Capital Moneyfy App to compare and invest in funds from different houses. Make use of the SIP calculator to plan and invest in ultra-short duration debt funds.

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