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Why Liquid And Ultra Short Duration Funds Are Ideal For Short-Term Investors?

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Investments and investors, both come in various shapes and requirements depending on the risk, period, and return. Most retail investors look for low-risk investment options, and when we think of low risk, we think of short-term mutual fund investments including liquid funds. As we frequently come across terminology like super short-term funds and liquid funds it becomes important to understand them.

 

Talking about funds, an ultra short-term fund including Liquid Fund, both are a type of debt fund that mostly invests in fixed income assets with maturities. However, what differentiates them is their maturity period. Ultra liquid fund investment ranges from 91 days to one year, whereas, the liquid fund comes with maturities of less than or equal to 91 days.

Liquid Fund 

Liquid Fund 

Having said that, Liquid Fund is a type of debt fund that matures in less than 3 months or 91 days. Talking about returns, returns are not guaranteed since the performance of the fund is determined by the market, as opposed to fixed deposits, which are not affected by the market. A liquid fund is preferred over a fixed deposit by an investor seeking higher returns.

Ultra Short Duration Fund
 

Ultra Short Duration Fund

An ultra-short bond fund invests in bonds that have a maturity of less than one year. These portfolios have limited interest-rate sensitivity and hence reduced risk and total return potential due to their emphasis on bonds with relatively short maturities. As said above, these are funds come with 91 days to one-year maturity period and invest in fixed income securities. Simplifying, Open-ended debt funds that invest in securities with a Macaulay duration of three to six months are known as extremely short duration funds.

Why it is good for short term investors

Why it is good for short term investors

According to mutual fund consultants, investors who wish to park their money for a month to six months might pick the very short duration category. These are essentially duration schemes, and the interest rate scenario has an influence on them. They are, nevertheless, the least affected of the duration fund group. The fact that interest rates are decreasing is excellent news for these plans. While most investors stagger their investments via STP (Systematic Transfer Plan) with liquid schemes, several mutual fund advisers feel that ultra-short duration funds might also be an excellent place to start an STP. They claim that by staggering their investments, investors might benefit from higher profits in ultra-short-term schemes.

Disclaimer

Mutual fund investments are subject to market risk. Read all documents and scheme-related conditions carefully before investing. The above-mentioned information is purely informational. The Greynium Information Technologies and the author are not liable for any losses caused as a result of a decision based on the article.

Read more about: mutual fund investment investor mf
Story first published: Wednesday, January 12, 2022, 18:47 [IST]
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