Ultra short-term funds are attractive for short durations
6 min read
The possibility of the Reserve Bank of India increasing interest rates in the near future is quite low. Currently, short-term yields are high, and if interest rates are cut in the future, there will be an increase in capital gains. From this perspective, ultra-short-term bond funds are much more attractive than bank fixed deposits for short-term investments of around 40 to 90 days.
Vivek Kudva, Managing Director of Franklin Templeton Asset Management Company, says that if an investor wants to invest for the short term, mutual funds' ultra-short-term funds can be good options. Their post-tax returns can be significantly better than the returns from bank fixed deposits. However, if the investment period is longer, other options should be considered.
Lakshmi Iyer, Head of Fixed Income at Kotak Mutual Fund, says that the Reserve Bank of India recently cut the Statutory Liquidity Ratio (SLR). However, until interest rates are reduced, investors should consider investing in ultra-short-term funds. Investors should invest in this fund for at least 40 days.
Ultra short-term funds are open-ended funds that invest in securities maturing in about 90 days to generate better returns. A portion of the assets is marked to market, meaning the securities are valued based on their daily prices to calculate the net asset value (NAV). Most ultra short-term funds do not impose an exit load if the withdrawal is made after 30 days. Mutual fund experts suggest that ultra short-term funds are attractive in the current scenario. They carry minimal interest rate risk, making them a good option for investors looking to park their money for a short duration. These funds are also an excellent choice for high-tax bracket investors, who can opt for the dividend reinvestment plan. The dividend distribution tax is 13.51%, which is lower than the short-term income tax rates of 20.6% (for investors in the 20% tax bracket) and 30.9% (for those in the 30% tax bracket). In summary, ultra short-term funds provide a viable investment avenue for those seeking short-term gains with minimal interest rate risk and tax efficiency.
Ultra short-term funds are open-ended funds that invest in securities maturing in about 90 days to generate better returns. A portion of the assets is marked to market, meaning the securities are valued based on their daily prices to calculate the net asset value (NAV). Most ultra short-term funds do not impose an exit load if the withdrawal is made after 30 days. Mutual fund experts suggest that ultra short-term funds are attractive in the current scenario. They carry minimal interest rate risk, making them a good option for investors looking to park their money for a short duration. These funds are also an excellent choice for high-tax bracket investors, who can opt for the dividend reinvestment plan. The dividend distribution tax is 13.51%, which is lower than the short-term income tax rates of 20.6% (for investors in the 20% tax bracket) and 30.9% (for those in the 30% tax bracket). In summary, ultra short-term funds provide a viable investment avenue for those seeking short-term gains with minimal interest rate risk and tax efficiency.
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