Top Ultra Short Term Funds: List of Best Ultra Short Debt Funds to Invest in 2024

Ultra short duration mutual funds in India offer a blend of modest returns and low risk, making them an attractive option for investors with short-term financial goals. With a quick exit strategy without compromising the safety of capital, ultra short-term funds are preferred over long-duration mutual funds. In this blog, we will delve deeper into identifying the best ultra duration funds, while exploring the advantages and risks associated with investing in these debt mutual funds.

Best Ultra Short Duration Funds in India (2024)

Fund Name	Market Cap (in cr)	Expense Ratio (%)	5Y CAGR (%)
PGIM India Ultra Short Duration Fund	₹249.48	0.27	7.16
ICICI Pru Ultra Short Term Fund Fund	₹12,586.13	0.39	6.57
Aditya Birla SL Savings Fund	₹10,747.67	0.34	6.36
Axis Ultra Short Term Fund	₹4,651.04	0.28	6.20
HDFC Ultra Short Term Fund	₹13,816.02	0.36	6.09
Kotak Savings Fund	₹12,372.43	0.37	6.01
Nippon India Ultra Short Duration Fund	₹5,653.60	0.38	5.94
Tata Ultra Short Term Fund	₹1,977.81	0.37	5.92
Invesco India Ultra Short Duration Fund	₹663.47	0.24	5.87
SBI Magnum Ultra Short Duration Fund	₹11,397.96	0.31	5.86

Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.

Note:  The data on the top ultra short term funds is from 27th May 2024 is derived from Tickertape Mutual Fund Screener.

🚀 Pro Tip: You can use Tickertape’s Stock Screener to research and evaluate stocks with over 200+ filters and parameters.

Top Ultra Short Term Funds in India 2024: An Overview

PGIM India Ultra Short Duration Fund

This best ultra short term fund offers a balanced blend of safety, liquidity, and returns by investing in high-quality, short-term debt instruments. Ideal for investors looking to park funds for a brief period while seeking better returns than traditional savings accounts. With the highest 5-yr CAGR, it is among the good ultra short term funds to invest in. As of 27th May 2024, the fund’s market capitalisation was Rs. 249.48 cr. In terms of portfolio composition, Certificate of Deposit makes up for the majority of the fund at 35.64% and the largest allocation towards Private Banks at 20.57%.

ICICI Pru Ultra Short Term Fund

ICICI Pru Ultra Short Term Fund is a Debt mutual fund scheme launched by ICICI Prudential Mutual Fund. This ultra short term mutual fund is designed for investors aiming for liquidity with a short investment horizon. It focuses on generating optimal returns through a diversified portfolio of debt and money market instruments, maintaining a low risk profile. As of 27th May 2024, the fund’s market capitalisation was Rs. 12,586 cr. The fund’s largest allocation was towards Public Banks at 23.36%.

Aditya Birla SL Savings Fund

Aditya Birla Sun Life Savings Fund is an open-ended ultra-short term debt scheme launched by Aditya Birla Mutual Fund. As of 27th May 2024, the fund’s market capitalisation was Rs. 10,747.67 cr. It can be suitable for investors seeking a prudent investment option with a quick exit strategy without compromising on the safety of capital. Corporate Debt makes up for the majority of the fund at 36.63% along with the largest allocation towards Private Banks at 27.63%.

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 top ultra short duration fund delivers consistent returns with a conservative approach, investing primarily in short-duration debt securities. This ultra short term fund is suitable for investors aiming for slightly higher returns on short-term investments with controlled risk. The fund has been categorised as Moderate by SEBI and had a market capitalisation of Rs. 4,651.04 cr. The fund’s annualised performance has been 6.55% since inception.

HDFC Ultra Short Term Fund

HDFC Ultra Short Term Fund Direct-Growth is an Ultra Short Duration mutual fund scheme from HDFC Mutual Fund. It focuses on achieving liquidity and reasonable income over the short term. By investing in various debt and money market instruments, this best ultra short term aims to offer a safer avenue for investors looking to step slightly beyond the boundaries of a savings account. The large-sized fund had a market capitalisation of Rs. 13,816 cr. as of 27th May 2024. The fund has been categorised as Moderate by SEBI and has shown an impressive annualised performance of 6.45% since inception.

Kotak Savings Fund

Kotak Savings Fund is an open-ended ultra-short-term debt scheme launched by Kotak Mahindra Mutual Fund. As of 24th May 2024, the fund’s market capitalisation was Rs. 12,372.43 cr. It’s designed for investors who desire easy access to their funds and the potential for higher returns than a regular savings mechanism. The large-cap fund is Moderately Low by SEBI and had a standard deviation of 0.31%. The largest allocation of the fund is towards Public Banks at 28.84%.

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. SEBI categorised the fund as Moderate and had a market capitalisation of Rs. 5,653. The fund’s annualised performance has been 7.16% since inception. In terms of fund composition, the majority of the fund is 37.83%, with the largest allocation towards Public Banks at 22.85%. 

Tata Ultra Short Term Fund

Tata Ultra Short Term Fund Direct-Growth is an Ultra-Short Duration mutual fund scheme from Tata Mutual Fund. The fund invests across a range of debt instruments, ensuring liquidity and aiming for returns since its inception. The fund’s annualised performance has been 6.06% since inception. SEBI categorised the fund as Moderately Low and had a market capitalisation of Rs. 1,977. Furthermore, the fund had the largest allocation towards Private Banks at 20.6%.

Invesco India Ultra Short Duration Fund

Invesco India Ultra Short Duration Fund is one of the ultra short term debt funds launched by Invesco Mutual Fund. As of 27th May 2024, the market capitalisation of the fund was Rs. 663.47 cr. The key feature of this fund is that it offers an investment avenue that balances risk and return by parking funds in a diversified portfolio of short-term debt securities. Ideal for cautious investors looking to optimise returns on their surplus funds without significant risk exposure. The fund has been categorised as Moderately Low by SEBI. As per the portfolio composition, corporate debt makes up the majority of the fund at 36.96%, along with the largest allocation towards private banks at 19.6%.

SBI Magnum Ultra Short Duration Fund

SBI Magnum Ultra Short Duration Fund is an ultra short term fund scheme launched by SBI Mutual Fund. This fund is specifically crafted to provide investors with an option for investing in a mix of short-term debt and money market instruments, aiming for optimal liquidity and returns. As of 27th May 2024, the market capitalisation of the fund was Rs. 11,397.96 cr. and was categorised as Moderate by SEBI. The fund’s annualised performance has been 7.19% since inception. In terms of composition, Certificate of Deposit makes up for the majority of the fund at 32.84%, along with the largest allocation towards Private Banks at 19.56%.

What is Ultra Short Duration Mutual Fund?

Ultra Short Duration Mutual Funds are debt funds that invest in securities with maturities typically between 3 to 6 months. They aim to provide liquidity and reasonable market-related returns, with lower risk and higher liquidity, by investing in a debt and money market instruments portfolio.

How to Invest in Ultra Short Term Funds?

Here are the key steps to invest in Ultra Short-Term Mutual Funds in India:

• Choose a Reputable Fund House: Select an asset management company (AMC) with a strong track record and a diverse range of ultra short-term fund options.
• Understand Your Investment Horizon: Ultra short-term funds are suitable for investment horizons ranging from 3 months to 1 year. Align your investment timeline with your financial goals.
• Assess Your Risk Tolerance: Ultra short-term funds are considered low-risk compared to other debt funds but still carry some interest rate and market risks. Ensure the fund’s risk profile matches your risk tolerance.
• Complete the KYC Process: If you are a new investor, complete the Know Your Customer (KYC) process by submitting the required documents and verifying your identity.
• Open a Demat and Trading Account: If you don’t have one already, open a Demat and trading account with a broker or directly with the AMC to facilitate your investments.
• Invest & Monitor: Once your account is set up, you can invest in the chosen ultra short-term fund either through a lump sum or via a Systematic Investment Plan (SIP).  If necessary, consider rebalancing your portfolio to align with your investment objectives.

Who Should Invest in Ultra Short Term Funds?

Ultra Short Duration Mutual Funds could be suitable for various investors based on several factors. Here are some types of investors who may consider putting their money into these funds:

• Short-term Investors: Ideal for those looking to invest for a period ranging from 3 to 12 months.
• Investors seeking better returns than savings accounts: Suitable for investors who want to earn higher returns without significantly increasing their risk profile.
• Conservative Investors: Those who prefer low-risk investments and wish to avoid the volatility of the equity markets might find these funds appealing due to their lower risk profile compared to longer-duration debt funds.
• Lump Sum Investors: Investors who have received a lump sum amount, like a bonus or a windfall gain, and wish to park this amount for a short duration could opt for these funds.
• Emergency Fund Allocators: Those who want to set aside an emergency fund that can be easily liquidated may choose Ultra Short Duration Funds for their high liquidity.

Remember that while these funds are relatively low risk, they are not entirely free from risks such as credit risk and interest rate risk, and they may offer modest returns compared to long-term investment options. It’s always recommended to align investment choices with personal risk tolerance, investment horizon, and financial goals​.

Factors to Consider While Investing in Ultra Short Term Funds in India

When considering an investment in ultra short term funds in India, several key factors should be evaluated to ensure that the fund aligns with your financial goals, risk tolerance, and investment horizon. Here are some important factors to consider:

• Investment Objective: Ensure the fund’s investment objective matches your financial goals. Ultra-short-term funds are suitable for investors looking to park surplus cash for a short period, typically between three months and a year, with relatively lower risk and better returns than regular savings accounts.
• Risk Profile: Assess the risk associated with the fund. While ultra short term funds are generally considered lower risk than longer-term debt funds, they still carry interest rate risk, credit risk, and market volatility. Understanding these risks and how they align with your risk appetite is crucial.
• Credit Quality of Portfolio: Check the credit quality of the assets included in the fund’s portfolio. Funds investing in higher-rated securities (AAA-rated) are generally safer than those investing in lower-rated securities. Higher credit risk could lead to higher returns but also increase the potential for default.
• Fund Performance: Evaluate the historical performance of the fund across different market conditions. While past performance is not indicative of future results, it can provide insights into how the fund manager has navigated various economic scenarios.
• Expense Ratio: The fund’s expense ratio is the annual fee the fund house charges for managing the money. A lower expense ratio can significantly impact net returns, especially in a low-interest rate environment.
• Liquidity: Ultra short term funds are generally liquid, but it’s important to understand any exit load or charges that may apply if you withdraw your investment before a certain period.
• Fund Manager’s Expertise: The fund manager’s experience and expertise are critical to managing the portfolio effectively, especially in choosing the right securities and managing risks. Review the fund manager’s track record and approach to managing the fund.
• Interest Rate Outlook: Since ultra-short-term funds can be affected by interest rate movements, understanding the current and expected future interest rate environment can be helpful. If interest rates are expected to rise, shorter-duration funds may be less affected than longer-duration funds.
• Reinvestment Opportunities: Consider the potential for reinvestment of returns. Reinvesting the proceeds at comparable yields might be challenging in a declining interest rate environment.
• Tax Implications: Understand the tax implications of your investment. The returns from ultra short term funds are taxed as per the income tax slab for holdings less than three years (short-term capital gains) and at 20% with indexation for holdings more than three years (long-term capital gains).

Features of an Ultra Short Duration Mutual Fund

Ultra Short Duration Mutual Funds are debt funds that invest in a mix of debt and money market instruments with the aim of providing investors with a balance of low risk and moderate returns. Here are the key features of these funds:

• Invest in debt and money market instruments: These funds allocate their assets across various debt securities and money market instruments to achieve their investment objectives.
• Macaulay Duration of the portfolio is 3 to 6 months: The Macaulay Duration, which is the weighted average term to maturity of the cash flows from the portfolio, ranges from 3 to 6 months for these funds.
• Suitable for short-term investments: Given their short investment duration, these funds are ideal for investors with short-term financial goals or those looking to park surplus funds for a brief period.
• Less volatile compared to longer duration funds: The short duration of the underlying securities makes these funds less sensitive to interest rate changes, thus reducing volatility.
• Offer better returns than traditional savings accounts: Ultra Short Duration Mutual Funds typically provide higher returns than savings accounts due to their ability to invest in instruments that yield more than the average savings rate.

Difference Between Liquid and Ultra Short Funds

The primary difference between liquid funds and ultra short-term funds lies in the maturity of the underlying securities they invest in. Liquid funds invest in debt instruments with a maturity of up to 91 days, while ultra short-term funds have a slightly longer investment horizon, investing in securities with maturities ranging from 3 to 6 months. This difference in maturity leads to liquidity, returns, and risk profile variations between the two fund categories.

Liquid funds offer higher liquidity compared to ultra short-term funds, with some fund houses even providing instant redemption facilities. However, ultra short-term funds have the potential to generate slightly higher returns due to their longer investment horizon, albeit with marginally higher risk. Both fund categories are considered low-risk investments suitable for short-term financial goals, with returns comparable to savings account rates.

Risks Involved While Investing in Ultra Short Term Funds in India

Like any investment, investing in ultra short term funds in India involves certain risks. These funds typically invest in debt securities with short maturities, and while they are generally seen as safer and more stable than long-term investments or equities, there are still several risks to consider:

• Interest Rate Risk: This is a primary risk for any debt fund, including ultra short term funds. Changes in interest rates in the economy can affect the price of the bonds these funds hold. Typically, when interest rates rise, bond prices fall, and vice versa. However, because ultra short term funds invest in securities with shorter durations, their sensitivity to interest rate changes is relatively lower compared to medium or long-term debt funds.
• Credit Risk: Refers to the risk of the bond issuer defaulting on its obligations, which can lead to losses for the fund. Ultra short-term funds might invest in commercial papers, certificates of deposits, corporate bonds, and other debt instruments that can vary in credit quality. A lower credit rating indicates higher risk.
• Liquidity Risk: Although ultra short term funds are generally quite liquid, certain securities within the fund’s portfolio may face trading issues. This can happen if the market for a particular security dries up, making it difficult for the fund to sell such securities without incurring a loss.
• Market Risk: These funds are subject to market fluctuations, even if these are usually less severe due to the short maturity of the assets. Macroeconomic factors, government policy changes, or economic environment shifts can influence market movements and affect the fund’s performance.
• Reinvestment Risk: Occurs when the returns from the fund’s investments have to be reinvested in other securities with lower yields. This is particularly a concern in a falling interest rate environment.
• Operational Risk: This includes risks arising from errors in processing, technology failures, and issues related to fund management.

Due to these risks, while ultra short term funds are generally considered less risky compared to other types of mutual funds, they are not entirely free from risk. Investors should consider their own risk tolerance, investment horizon, and other financial goals when investing in these funds. It’s also useful to review the fund’s portfolio to understand its exposure to different types of risks.

Advantages of Ultra Short Duration Mutual Funds

Investing in Ultra Short Duration Mutual Funds offers several advantages, especially for those looking to park their funds for a short period. Here are some of the benefits of investing in these funds:

• Short Investment Horizon: These funds are ideal for investors with an investment horizon of around 6 months to 1 year. They can serve as a good investment vehicle for short-term financial goals.
• Diversification: For investors with exposure to equity or other high-risk instruments, Ultra Short Duration Funds can provide diversification. Diversification can help reduce the overall risk of an investment portfolio.
• Low-interest Rate Risk: The short maturity of the investments minimises the fund’s exposure to interest rate fluctuations.
• Better Liquidity: These funds may offer higher liquidity than longer-term investment options, making them suitable for investors needing access to their funds on short notice.
• Potentially Higher Returns: They aim to provide higher returns than savings accounts and very short-term fixed deposits.
• Suitable for Conservative Investors: These funds may be appropriate for investors with a low-risk appetite and a short investment horizon.

How to Calculate Returns on Ultra Short Duration Mutual Funds?

To calculate the returns on Ultra Short Duration Mutual Funds, you can use the annualised return formula:

Annualised Return = (Ending NAV – Beginning NAV + Distributions) / Beginning NAV)^(365/number of days held) – 1

Where:

• NAV stands for Net Asset Value
• The term “Ending NAV – Beginning NAV + Distributions” represents the total return over the investment period
• “Beginning NAV” is the Net Asset Value at the start of the investment period
• “Distributions” include any payouts such as dividends or interest received during the investment period
• “365/number of days held” is used to annualise the return based on the actual number of days the investment was held.

Taxability on Ultra Short Duration Mutual Funds

In India, the taxability of returns from ultra short duration mutual funds depends on the nature of the returns and the duration for which the investments are held. Here’s how it works:

Dividend Income: If you receive dividends from your ultra short duration mutual fund, the fund house pays a Dividend Distribution Tax (DDT) before distributing them. However, as of April 2020, dividend income from mutual funds is added to the investor’s total income and taxed according to their applicable income tax slab rates.

Capital Gains: The tax on the capital gains from ultra short duration mutual funds depends on the holding period:

• Short-term capital gains: If the investment is held for less than 36 months, gains are taxed according to the investor’s income tax slab rate.
• Long-term capital gains: For investments held for more than 36 months, gains are taxed at 20% with indexation benefits.

To Wrap It Up…

Ultra Short Duration Mutual Funds are a strategic investment choice for those seeking a low-risk option with liquidity and the potential for modest returns. They are particularly suitable for short-term financial objectives and for investors who wish to maintain a conservative investment profile. Therefore, evaluating the above-mentioned factors can help you make a more informed decision when investing in ultra short term funds, while mitigating risk.

Most Popular Mutual Funds:

As an investor to have a diversified mutual funds portfolio, you might also like to know more about these different types of funds for investing –

Large Cap Mutual Funds	Mutual Fund Bulk Deals	SBI Mutual Funds for SIP	SBI MF for Long Term SIP	Sectoral Mutual Funds	Short Term Mutual Funds	Tax Saving Mutual Funds	Mid Cap Mutual Funds
Small Cap Mutual Funds	Pharma Mutual Funds	80c Mutual Funds	1 Year Mutual Funds	International Mutual Funds	Tata Mutual Funds	Mutual Fund Portfolio	Best Mutual Funds
High Risk Mutual Funds	Micro Cap Mutual Funds	AMCs	MNC Mutual Funds	Equity Mutual Funds	Overnight Funds	ICICI Pru Mutual Funds	HDFC Mutual Funds
Best Investment Plans	Fixed Income Mutual Funds	Penny Stock Mutual Funds	Retirement Mutual Funds	Floater Rate Funds	Aggressive Hybrid Funds	Multi Asset Allocation Funds	Children’s Funds
Medium Duration Funds	Debt Funds	Corporate Bonds	Ultra Short Term Funds	Value Funds	Contra Funds	Focused Funds	Funds of Funds
Money Market Funds	Arbitrage Funds	Gold Mutual Funds	Books on Mutual Funds	Best Mutual Funds for SIP	SBI Mutual Funds	Low Risk Mutual Funds	Dividend Paying Funds
Long Term Mutual Funds	Banking Mutual Funds	Gilt Funds	Mutual Funds for 10 Years	Monthly Income Mutual Funds	Nifty 50 Index Funds	Lumpsum Investment Funds	Blue Chip Mutual Funds
Low Expense Ratio Funds

Frequently Asked Questions(FAQs) on Ultra Short-Term Funds