Investment product:
Type of a debt mutual fund product which provides reasonable returns in the short term as well as offers liquidity. |
It is the operating account that you hold with your bank to carry out your day-to-day transactions. |
Professional Fund Management:
A fund manager mainly invests in a portfolio of short-term debt and money market instruments. (Click here to know more)
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A mandatory return of 3.5% set by RBI for all banks. |
Reduce Tax Burden:
Tax rate applicable is only 13.841% for Dividend option for all investors belonging to retail and HUF category. (see Table 1)
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Tax rate of 10%, 20% and 30% is applicable as per individual income slab |
Easy liquidity:
Provides you with the flexibility to enter and exit the fund easily, anytime (read explanation below).
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The money rests in your savings account. |
Expense:
Ranges between 0.30% to 1.10% at present
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NIL |
Mark-to-Market:
If the portfolio is invested in MTM instruments (maturity over 90 days), the fund can be volatile as the bond yields would be subjected to market movements. Hence, returns are variable.
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Fixed return |
Product That Gives Better Post Tax Return
Table 1: Comparison between savings account deposit and investment in an Ultra Short Term Fund
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| Return expected |
Fixed |
Variable |
Variable |
Variable |
| Annualised return (%) |
3.5 |
4.5 |
7 |
8 |
| Accumulated amount INR |
103500 |
104500 |
107000 |
108000 |
| Gain on investment INR |
3500 |
4500 |
7000 |
8000 |
| Post Tax Return (@20%) INR |
2800 |
3877 |
6031 |
6893 |
| Difference in Return (%) |
|
38% |
115% |
146% |
| Post Tax Return (@30%) INR |
2450 |
3877 |
6031 |
6893 |
| Difference in Return (%) |
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51% |
128% |
159% |
In the example below, we have calculated the gains and the impact of differential taxation on an amount of INR 1 lakh. Do note that the return assumed for Ultra Short Term Fund is net of expenses as discussed above.
Product That You Can Buy/Sell anytime
Ultra Short Term Fund category is suitable for investors who have short term savings and an investment time horizon of 3-6 months. Since these are an open-ended mutual fund, investors can choose to enter or exit the fund anytime. To invest, you can submit a request online at Fundsupermart.com. Likewise the withdrawal, and normally, the proceeds would be credited in your account in T+1 day. For example, if you submit the request before 3pm today, then you may get the redemption amount by the next day. But, if the request gets registered after 3pm, you shall receive the money the day after.
For some funds, an exit load is applicable which ranges between 0.15% and 0.25% for holding period of less than 7-15 days.
Product That Helps Meet Your Short Term Financial Goals
Here, we have assumed three instruments giving a CAGR return of 4.5%, 7% and 8% and the cumulative value at the end of 3 years. The illustration shows the opportunity cost on your invested money which increases over a period of time.
Thus, one can park the surplus funds that may be needed after a period of 3-6months in Ultra Short Term Funds and gain from the yield differential, if any or more.
We have listed below our recommended list of funds from Ultra Short Term Fund category. These funds are selected from 40 Funds that are available in the market due to superior performance, lower expenses and consistency (learn more>>). |
Chart 2: Power of compounding
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View Recommended Funds>>
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^DISCLAIMER ON USING YIELD TO MATURITY
YTM does not represent and should not be taken as the past, expected or actual returns on investment in any mentioned fixed income mutual funds. Further, it is not a forecast or projected yield and is not indicative of the future or likely performance for any of the fixed income mutual funds. The YTM on a fixed income mutual fund is not equivalent to and cannot be compared with the yield on bonds that are held to maturity.
This article is for information purpose only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products /investment products mentioned in this article or an attempt to influence the opinion or behavior of the investors /recipients. Any use of the information /any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice. Mutual Funds are subject to market risk. Read all scheme related documents carefully before investing.
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