What are Ultra-Short Definition Funds?

A mutual fund is an investment vehicle that pools money from investors and invests the accumulated corpus in a wide range of capital market securities. Mutual fund schemes allocate their investments in different asset classes like debt, equity, gold, etc. Mutual funds that focus their investment portfolio mainly on debt securities are called debt mutual funds or debt-oriented funds.

Debt funds could be classified based on various factors. One of them is the tenure of the debt securities they invest in like liquid funds, medium duration funds, short-term plans, ultra-short-term plans, long-term debt schemes, etc.Ultra-short definition funds or ultra-short-term funds are debt mutual funds that invest in fixed-income instruments having a short tenor. They mainly invest their funds in money market securities and other short-term instruments having high liquidity.

Ultra-short definition funds yield steady returns through the accrual of interest. They experience minimal NAV volatility and are thus considered as less risky as compared to schemes belonging to other categories. However, it must be noted that ultra-short definition funds are not immune to market fluctuations.Additionally, ultra-short definition schemes also have low-interest rate risk, thus protecting investors against  significant unfavourable changes in the value of securities.Ultra-short definition funds have found great use in the treasury management of a company. For this reason, ultra-short term funds are also known as treasury management or cash management funds.

Although ultra-short definition schemes may be perceived as a profitable investment opportunity, one must examine crucial details like the scheme’s fund manager, investment objectives, risk profile, portfolio, etc. so as to make an informed decision.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.