Best Ultra Short Duration Funds Sorted by Last 3 Year Returns

Fund Name
AUM
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3Y Returns
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UTI Ultra Short Duration Fund Direct Plan Annual IDCW Payout

UTI Ultra Short Duration Fund Direct Plan Annual IDCW Payout

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.98%

2.5

UTI Ultra Short Duration Fund Direct Plan Annual IDCW Reinvestment

UTI Ultra Short Duration Fund Direct Plan Annual IDCW Reinvestment

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.98%

2.5

UTI Ultra Short Duration Fund Direct Plan Half Yearly IDCW Reinvestment

UTI Ultra Short Duration Fund Direct Plan Half Yearly IDCW Reinvestment

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.98%

2.5

UTI Ultra Short Duration Fund Direct Plan Fortnightly IDCW Payout

UTI Ultra Short Duration Fund Direct Plan Fortnightly IDCW Payout

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.98%

2.5

UTI Ultra Short Duration Fund Direct Plan Fortnightly IDCW Reinvestment

UTI Ultra Short Duration Fund Direct Plan Fortnightly IDCW Reinvestment

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.98%

2.5

UTI Ultra Short Duration Fund Direct Plan Half Yearly IDCW Payout

UTI Ultra Short Duration Fund Direct Plan Half Yearly IDCW Payout

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.98%

2.5

UTI Ultra Short Duration Fund

UTI Ultra Short Duration Fund

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.98%

2.5

UTI Ultra Short Duration Fund Direct Plan Flexi IDCW Payout

UTI Ultra Short Duration Fund Direct Plan Flexi IDCW Payout

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.98%

2.5

UTI Ultra Short Duration Fund Direct Plan Flexi IDCW Reinvestment

UTI Ultra Short Duration Fund Direct Plan Flexi IDCW Reinvestment

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.98%

2.5

UTI Ultra Short Duration Fund Direct Plan Quarterly IDCW Payout

UTI Ultra Short Duration Fund Direct Plan Quarterly IDCW Payout

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.98%

2.5

UTI Ultra Short Duration Fund Direct Plan Quarterly IDCW Reinvestment

UTI Ultra Short Duration Fund Direct Plan Quarterly IDCW Reinvestment

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.98%

2.5

UTI Ultra Short Duration Fund Direct Plan Daily IDCW (Reinvestment)

UTI Ultra Short Duration Fund Direct Plan Daily IDCW (Reinvestment)

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.98%

2.5

UTI Ultra Short Duration Fund Direct Plan Daily IDCW (Reinvestment)

UTI Ultra Short Duration Fund Direct Plan Daily IDCW (Reinvestment)

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.98%

2.5

UTI Ultra Short Duration Fund Direct Plan Monthly IDCW Payout

UTI Ultra Short Duration Fund Direct Plan Monthly IDCW Payout

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.82%

2.5

UTI Ultra Short Duration Fund Direct Plan Monthly IDCW Reinvestment

UTI Ultra Short Duration Fund Direct Plan Monthly IDCW Reinvestment

Debt Ultra Short Duration Fund

₹2,239.53 Cr.

6.82%

2.5

Nippon India Ultra Short Duration Fund Direct Plan Weekly IDCW Reinvestment

Nippon India Ultra Short Duration Fund Direct Plan Weekly IDCW Reinvestment

Debt Ultra Short Duration Fund

₹6,039.94 Cr.

6.66%

3

Nippon India Ultra Short Duration Fund

Nippon India Ultra Short Duration Fund

Debt Ultra Short Duration Fund

₹6,039.94 Cr.

6.52%

3

Nippon India Ultra Short Duration Fund Direct Plan Monthly IDCW Payout

Nippon India Ultra Short Duration Fund Direct Plan Monthly IDCW Payout

Debt Ultra Short Duration Fund

₹6,039.94 Cr.

6.52%

3

Nippon India Ultra Short Duration Fund Direct Plan Monthly IDCW Reinvestment

Nippon India Ultra Short Duration Fund Direct Plan Monthly IDCW Reinvestment

Debt Ultra Short Duration Fund

₹6,039.94 Cr.

6.52%

3

Bank of India Ultra Short Duration Fund Direct Plan Daily IDCW Reinvestment

Bank of India Ultra Short Duration Fund Direct Plan Daily IDCW Reinvestment

Debt Ultra Short Duration Fund

₹160.55 Cr.

6.5%

2.5

Nippon India Ultra Short Duration Fund Direct Plan Daily IDCW Reinvestment

Nippon India Ultra Short Duration Fund Direct Plan Daily IDCW Reinvestment

Debt Ultra Short Duration Fund

₹6,039.94 Cr.

6.5%

3

Invesco India Ultra Short Duration Fund Direct Plan Quarterly IDCW (Payout / Payout)

Invesco India Ultra Short Duration Fund Direct Plan Quarterly IDCW (Payout / Payout)

Debt Ultra Short Duration Fund

₹691.69 Cr.

6.32%

2

Invesco India Ultra Short Duration Fund Direct Plan Quarterly IDCW (Reinvestment / Reinvestment)

Invesco India Ultra Short Duration Fund Direct Plan Quarterly IDCW (Reinvestment / Reinvestment)

Debt Ultra Short Duration Fund

₹691.69 Cr.

6.32%

2

ICICI Prudential Ultra Short Term Fund Direct Plan Quarterly IDCW Payout

ICICI Prudential Ultra Short Term Fund Direct Plan Quarterly IDCW Payout

Debt Ultra Short Duration Fund

₹12,285.99 Cr.

6.26%

5

ICICI Prudential Ultra Short Term Fund Direct Plan Quarterly IDCW Reinvestment

ICICI Prudential Ultra Short Term Fund Direct Plan Quarterly IDCW Reinvestment

Debt Ultra Short Duration Fund

₹12,285.99 Cr.

6.26%

5

ICICI Prudential Ultra Short Term Fund

ICICI Prudential Ultra Short Term Fund

Debt Ultra Short Duration Fund

₹12,285.99 Cr.

6.26%

5

ICICI Prudential Ultra Short Term Fund Direct Plan Monthly IDCW Payout

ICICI Prudential Ultra Short Term Fund Direct Plan Monthly IDCW Payout

Debt Ultra Short Duration Fund

₹12,285.99 Cr.

6.26%

5

ICICI Prudential Ultra Short Term Fund Direct Plan Monthly IDCW Reinvestment

ICICI Prudential Ultra Short Term Fund Direct Plan Monthly IDCW Reinvestment

Debt Ultra Short Duration Fund

₹12,285.99 Cr.

6.26%

5

ICICI Prudential Ultra Short Term Fund Direct Plan Weekly IDCW Payout

ICICI Prudential Ultra Short Term Fund Direct Plan Weekly IDCW Payout

Debt Ultra Short Duration Fund

₹12,285.99 Cr.

6.24%

5

Axis Ultra Short Term Fund

Axis Ultra Short Term Fund

Debt Ultra Short Duration Fund

₹4,596.18 Cr.

6.21%

2

About Ultra Short Duration Mutual Funds

Ultra short-term funds are similar to liquid funds; however, these offer higher liquidity than other classes of funds. Also known as ultra-short-duration funds, these are debt funds whose underlying securities have a maturity of 3 to 6 months. These funds are relatively riskier than liquid funds but fall under one of the lowest-risk categories of the mutual fund’s umbrella.

Since these are shorter-duration funds, the returns are lower compared to longer-duration mutual funds. When you invest in ultra short-term funds, you are charged a fee in the form of an expense ratio. This is towards managing your money. As per SEBI, the upper limit of the expense ratio is 1.05%.

How Do Ultra Short Funds Work?

Ultra-short funds or ultra-short duration funds are open-ended mutual funds that invest in debt instruments. These funds have a typical Macaulay duration of 3 to 6 months. Simply put, these funds invest in debt securities with maturity periods of 3-6 months. Ultra short funds mainly invest in fixed-income instruments like commercial papers, certificates of deposit, treasury bills, and money market instruments.

Ultra short-term funds, as they work for short periods, have liquidity. Furthermore, minimal maturity periods make these funds less influenced by interest rate shifts in the market. The fund works on the premise that it has the potential to provide higher growth than long-duration debt funds in a rising interest rate regime. These funds believe in delivering returns by holding securities until their maturities. The returns are calculated according to the rise or fall in the NAV or the Net Asset Value of the fund. The NAV of the fund tends to rise or fall with changes in interest rates.

Features of Ultra Short Duration Mutual Funds

  1. Ultra short-term funds are debt funds. Hence, these funds are exposed to three types of risks – credit risk, interest rate risk, and liquidity risk.
  2. These funds are relatively less risky compared to equity and hybrid funds. As such, their returns are also lower than most other funds classes.
  3. Ultra short-term funds have an expense ratio, which is a fee charged by the fund manager to manage your money. To optimise your returns, you may look for schemes with a lower expense ratio but ensure to evaluate other factors like risk, too.
  4. Ultra short-term funds can be considered for short-term investment needs and Systematic Transfer Plans (STP).
  5. As the returns given by ultra short-term funds are around 7-9%, you can consider these as alternatives to bank accounts and deposits.

Advantages of Investing in Ultra Short-Term Funds

Ultra short-term funds are ideal investments for investors looking to park their surplus capital for a short period (weeks to a few months).

Unlike fixed deposits and other bank deposits, ultra-short-term funds have higher liquidity. You can exit the fund anytime you wish.
Typically, ultra short-term funds don’t have an exit load. This means you don’t have to pay any charges when redeeming your fund units.
If you invest in ultra short-term funds for less than 3 months, your losses arising from a change in interest rates would be almost nil.
In a low-interest rate regime, ultra-short-term funds can give higher returns than bank deposits.
Some fund houses allow you to systematically transfer a regular amount into equity mutual funds offered by them.

Risks Involved in Ultra Short-Term Funds

Since an ultra short-term fund is a debt fund, it has three types of risks:

  1. Credit risk: This is the risk of default by the issuer of the underlying securities.
  2. Interest rate risk: This is the impact of an increase or decrease in the interest rates on the fund’s value.
  3. Liquidity risk: This is the risk associated with the fund house not having ample liquidity to honour the redemption requests of investors.

You can minimise your credit risk by studying the portfolio of the ultra short-term fund to ensure that the scheme has invested in high-rated underlying debt securities. You can assess the fund manager to get an idea of their past performance during varying interest rate cycles. If the fund has performed optimally even during interest rate fluctuations, then the manager has done well.

Factors To Consider Before Investing in Ultra Short Mutual Funds

It is important to consider certain variables before you go ahead and invest in ultra-short mutual funds:

  • Thinking of your individual investment goals is necessary when considering ultra-short-duration funds. These funds are considered by those investors who want liquidity and short-term investment, perhaps to park excess funds or make some returns to build an emergency fund. In case you wish to invest in a short-duration fund that offers higher returns than conventional bank deposits, you may consider an ultra-short fund.
  • Investors should also consider their investment horizon. As ultra-short-term funds have maturity periods that are slightly higher than liquid funds, you may think of these for more substantial returns.
  • Think of the returns you stand to potentially gain. Debt funds may offer higher returns than liquid funds, but these may not be assured. As such funds have an inverse relationship with the movements of interest rates, the NAV falls with an increase in interest rates and vice versa.
  • Relative to other debt funds, ultra-short funds have interest rate risks on the lower side. This is mainly due to short maturity periods. Nonetheless, you must also consider that there may be credit risk involved depending on the investment strategy of the fund house.
  • As is the case with all mutual funds, there are some costs to be borne with ultra-short funds. Expense ratios are charged with a maximum cut-off, so you may consider funds with long maturities and low expense ratios to maximise returns.
  • You must consider the taxation on any gains from ultra-short mutual funds. Gains may be taxed according to your investment duration, added to your income, and taxed as per your income slab rate (for debt mutual funds).

Who Should Invest in Ultra Short-Term Mutual Funds?

  1. Ultra short-term funds are most suited for investors who are looking to park their funds and have quick access to them when required.
  2. These are also sought-after by investors looking for alternatives to bank accounts and deposits.
  3. A smart way to use ultra short-term funds to your advantage is to invest a lumpsum surplus in such funds and use portions of it to buy the dip in your favourite stocks.
  4. Some fund houses also offer a Systematic Transfer Plan (STP) facility by which you can instruct them to transfer a regular sum of money into an equity fund of the same AMC.

Taxability of Ultra-Short-Term Funds

When you redeem ultra-short-term mutual fund units, you may earn capital gains. Such gains can attract Short-term Capital Gain Tax (STCG) or Long-term Capital Gain Tax (LTCG) depending on the holding period (how long you hold your investment in the fund).

Capital gains earned on selling the units within 3 years of the holding period are called STCG; those earned over 3 years or more are known as LTCG. While STCG from such funds is added to your income and taxed as per the applicable income tax slab, LTCG is taxed at the rate of 20% after indexation.

Dividend taxation – Dividends earned on ultra short-term funds are added to the investor’s taxable income and taxed at the rate as per the income tax slab. There is also a 10% TDS on dividend amounts exceeding ₹5,000 in a financial year.

How To Invest in Ultra-Short Funds?

Investing in the ultra-short Mutual Fund is hassle-free when done through your Angel One account. You just have to follow these simple steps:

Step 1: Log in to your Angel One account.

Note: In case you do not have an account with Angel One, you can open a demat account with us in under a few minutes by submitting the necessary documents.

Step 2: Determine an ultra-short fund that suits your needs and risk profile. You can learn more about each ultra-short fund on the Angel One app. Things to consider at this stage are:

  1. Search for the fund you want to invest in.
  2. Analyse the fund’s past performance, tax incidence, and the sectors and companies it invests in. You can also calculate the potential returns using the calculator.
  3. Evaluate the fund’s level of risk, its ratings and expense ratio.

Step 3: Once you finalise the ultra-short fund(s) you want to invest in, open your Angel One account, go to the Mutual Funds section, and look for it.

  1. Decide whether you want to invest via SIP or make a one-time investment
  2. Decide your monthly SIP date. Now, enter the amount you want to invest and choose the payment mode.
  3. After placing the order, you can create an AutoPay to make hassle-free future instalments in case of SIP investments.

Top 5 Ultra Short-Term Mutual Funds

Name AUM (in ₹ crore) Minimum Lumpsum (₹) Absolute Returns – 3M (%) Absolute Returns – 6M (%)
Nippon India Ultra Short Duration Fund 5114.77 100 1.71 3.28
Axis Ultra Short Term Fund 4427.69 5000 1.71 3.25
Sundaram Ultra Short Duration Fund 1412.89 1000 1.70 3.24
DSP Ultra Short Fund 2739.07 500 1.69 3.16
Baroda BNP Paribas Ultra Short Duration Fund 560.79 5000 1.69 3.28

The above-mentioned top funds are for informational purposes only, and are not recommendations. The funds are based on 3 months’ absolute returns, which are subject to change frequently. Check out real-time data on Angel One.

Nippon India Ultra Short Duration Fund

Having an AUM of ₹5,114.77 crore, Nippon India Ultra Short Duration Fund is a large-sized fund. It is benchmarked against the NIFTY Ultra Short Duration Debt Index. The minimum lump sum allowed is ₹100.

The fund’s expense ratio is 0.38%, which is lower compared to the category expense ratio of 0.60%. Its Yield to Maturity (YTM) is also higher at 7.83% compared to the average yield to maturity of all the mutual fund schemes in the same category, which is 7.54%. The fund has a higher Sharpe Ratio of 4.67% compared to the category average of 2.36%.

Axis Ultra Short Term Fund

Axis Ultra Short Term Fund is a mid-sized fund with an AUM of ₹4,427.69 crore. It is benchmarked against the NIFTY Ultra Short Duration Debt Index. You can invest in the fund via SIP or a minimum lump sum of ₹5,000.

The fund’s expense ratio is 0.31%, lower than the category average of 0.60%. Its Yield to Maturity (YTM) of 7.80% is higher than the category average of 7.54%. Further, the fund’s Sharpe Ratio is 3.98% compared to the average of all the funds in the category, which is 2.36%.

Sundaram Ultra Short Duration Fund

This is a mid-sized fund having an AUM of ₹1,412.89 crore. NIFTY Ultra Short Duration Debt Index is the benchmark index. The fund allows SIP and a minimum lump sum of ₹1,000.

The fund’s expense ratio is 0.17% compared to the category average of 0.60%. Its YTM is 7.46%, lower than the category average of 7.54%. Sundaram Ultra Short Duration Fund has a Sharpe Ratio of 4.57%, much higher than the average of all the direct mutual fund schemes in the category, which is 2.36%.

DSP Ultra Short Fund

DSP Ultra Short Fund is a mid-sized fund having an AUM of ₹2,739.07 crore. The fund is benchmarked against the CRISIL Ultra Short-Term Debt Index. You can either invest in the fund via SIP or a minimum lump sum of ₹500.

DSP Ultra Short Fund’s expense ratio is 0.30%, lower than the category average. Its YTM is 7.71%, higher than the category average, and the Sharpe Ratio is 3.51%, again higher than the average of all funds in the category.

Baroda BNP Paribas Ultra Short Duration Fund

Having an AUM of ₹560.79 crore, Baroda BNP Paribas Ultra Short Duration Fund is benchmarked against the CRISIL Ultra Short Term Debt Index.

The expense ratio is 0.22%, lower than the category average. The YTM is 7.63%, and the Sharpe Ratio is 3.65%, both higher than the average.

Mutual Funds Calculators

Ultra Short Duration Funds FAQs

Are ultra short-term mutual funds high risk?

Ultra-short mutual funds are similar to liquid funds. These invest in short-term debt securities with maturity ranging from 3 to 6 months. Hence, these are low-risk funds compared to equity mutual funds. You can check the risk level of each fund in the Angel One app or https://www.angelone.in/mutual-funds under the Mutual Funds section.

Should I invest in ultra-short-term mutual funds?

It depends on your investment objective. You can consider investing in ultra-short-term mutual funds if you have a low-risk appetite, want liquidity, and have an investment horizon of 3 to 6 months. Bear in mind that returns are also lower but generally higher than what a savings bank account offers.

What are the expected returns of ultra-short-term mutual funds?

Well-managed, best ultra short-term funds generally yield around 7-9% returns. Although these returns are lower than an equity fund, they are better than a savings bank account. That said, the main objective of investing in such funds should be to enjoy liquidity and easy access to funds in times of need.

What are the risks involved in investing in ultra-short-duration funds?

Ultra-short-duration funds are exposed to three types of risks. They are credit risks, interest rate risks, and liquidity risks. Having said that, such funds have a lower risk compared to other classes of funds.

Are ultra short-duration funds taxable?

Short Term Capital Gains (STCG) arising from these funds are added to your income and taxed according to your income tax slab. On the other hand, Long Term Capital Gains are taxed at 20% after indexation.

How much money should I invest in ultra short-term funds?

Since these funds don’t offer high returns, it makes sense to invest only a portion of your surplus funds to which you need easy access. That is, the amount you are left with after making high-ticket investments, meeting expenses, and paying EMIs.