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Best Ultra Short Term Mutual Funds

Ultra-short-term funds invest in debt securities with a limited maturity period, ranging between 3 and 6 months. Fund managers invest the capital into debt funds and money market instruments. Liquid funds and ultra-short-term mutual funds differ in their investment’s maturity periods. The latter invests in securities with a maturity period longer than 91 days, while liquid funds cannot invest in securities with a Macaulay duration of more than 3 months. Before investing in the best ultra-short mutual funds, an investor must know about them.

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Top 10 Ultra Short Mutual Funds

Fund NameCategoryRisk1Y ReturnsRatingFund Size(in Cr)
ICICI Prudential Ultra Short Term FundDebtModerately High4.7%5star9,692
Aditya Birla Sun Life Savings FundDebtModerate4.2%4star17,747
Axis Ultra Short Term FundDebtModerate4.3%4star5,680
HDFC Ultra Short Term FundDebtLow to Moderate4.0%4star16,705
Kotak Savings FundDebtLow to Moderate3.7%4star12,698
SBI Magnum Ultra Short Duration FundDebtLow to Moderate3.6%4star11,007
Invesco India Ultra Short Term FundDebtLow to Moderate3.7%4star1,059
Mahindra Manulife Ultra Short Term FundDebtModerately Low3.7%4star181
IDFC Ultra Short Term FundDebtLow to Moderate3.4%3star4,729
L&T Ultra Short Term FundDebtLow to Moderate3.5%3star2,100
Baroda Ultra Short Duration FundDebtLow to Moderate3.8%3star108
UTI Ultra Short Term FundDebtLow to Moderate7.0%3star1,933
BOI AXA Ultra Short Duration FundDebtLow to Moderate3.4%3star238
DSP Ultra Short FundDebtLow to Moderate3.6%3star3,224
Principal Money Manager FundDebtLow to Moderate3.5%3star106
View All Top 10 Ultra Short Mutual Funds

Features of Ultra Short Term Mutual Fund

Listed below are some features of the best ultra short mutual funds in 2021:

Asset allocation: As per SEBI, such funds can invest up to 50% of the total assets into debt instruments, up to 50% in foreign securities and up to 20% in securities lending. For this last part, fund managers must ensure that exposure to a single party does not exceed 5% of the total assets.

Risk-reward ratio: Ultra short-term mutual funds are a riskier proposition when compared to liquid funds. However, an excessively limited maturity term offsets most of the associated risks. Credit risk, liquidity risk, and interest rate risk are the three major concerns for investors. Nevertheless, an aptly managed best ultra short mutual fund can provide returns ranging between 7% and 9%.

Taxability

Long-term Capital Gains Tax: Returns from the best ultra short mutual funds are taxed at a flat 20% with indexation benefits. Such taxes are applicable on the sale of units with a holding period of more than 3 years.

Short-term Capital Gains Tax: Returns from funds with a holding period of shorter than 3 years are taxed as per STCG norms. The returns are added to the yearly income of the individual, and taxes are levied as per his/her income tax slab. 

TDS: TDS does not apply to ultra-short-term funds.

Who Are These Funds Suited For?

The top ultra-short mutual funds are best suited to individuals looking to fulfil their short-term investment goals. This particular instrument can also serve a systematic transfer plan, a purpose usually fulfilled by liquid funds. Individuals can invest in these ultra-short funds and instruct the fund manager to transfer a certain portion of its returns to any other scheme each month. This plan can be an alternative to investing a significant sum directly in different schemes.

The best ultra short mutual funds offer considerable liquidity. Additionally, the returns from such an option are higher than from liquid funds in most cases.

Still, before investment in ultra-short funds, one should consider the following factors – 

Investment goal: Investors must select a suitable scheme per their investment objective and horizon. It can help individuals determine the level of investment they need to make and for how long they must be invested in a specific scheme to realise their goals.

Holding analysis: Evaluating a scheme’s holdings is crucial to determining whether it is the right fit for your portfolio. Some schemes may invest significantly in high-quality securities, meaning they offer stability and moderate returns. Other schemes might be pivoted towards securities with a low credit rating, promising more sizeable returns. 

Risk profile: Risk appetite differs from one investor to another. When it comes to debt instruments, the best ultra-short mutual funds feature reduced interest rate risks. Nevertheless, individuals must still consider the credit risk that these funds may suffer from. This primarily happens when the fund manager invests in low-quality securities in order to generate higher returns.

Past performance of the fund: Past performance of ultra-short mutual funds can be a good indicator of its performance. Nevertheless, they do not guarantee accurate predictions. Practised investors can still acquire quite a bit of information from this comparison.

Expense ratio: Asset management companies charge a fee to handle an individual’s mutual fund investments. SEBI has restricted the expense ratio to up to 2% of returns. Find out the expense ratio of specific ultra-short mutual fund schemes before investing in them.

Exit load: Some schemes feature an exit load, which comes into effect when an investor redeems his/her investments prior to a specific period. It’s essential to check this to time redemption so that there’s minimal impact on returns.

Major Advantages

Below are certain benefits of investing in the best ultra short mutual funds – 

High liquidity: These funds promise sufficient liquidity. Investors can withdraw their investments any time after investment. However, they should be wary of exit loads. 

Ensures short-term goal fulfilment: Individuals can invest in these options at any time, which would help them to pursue short-term financial goals. Investors with an investment horizon of up to 1 year can benefit significantly from these instruments. 

Safe from interest rate volatility: These mutual funds can offset the risks from interest rate volatility thanks to an ultra-short-term Macaulay duration. 

Sufficient returns: Returns from such ultra-short-term mutual funds are more significant when compared to other funds with investments in securities with shorter maturity periods. 

No exit load: Typically, these funds do not have any exit loads. Exit loads refer to the additional charge that investors need to pay when they decide to withdraw the capital before its maturity period. Still, one must check this factor before investing, as some funds may have an exit load proposition.

Accrual returns: Investors can hold such funds till maturity to generate accrual returns.

Let's have a closer look

Now let us jump and check about these top 10 mutual fund schemes.

ICICI Prudential Ultra Short Term Fund Direct Growth

Fund Performance: This fund has given 7.3% annualized returns in the last three years. In the last year, its returns were 4.74%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 4.74% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM9,692Cr
1Y Returns4.7%

Aditya Birla Sun Life Savings Direct Growth

Fund Performance: This fund has given 6.98% annualized returns in the last three years. In the last year, its returns were 4.24%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 4.24% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹1,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹1,000
AUM17,747Cr
1Y Returns4.2%

Axis Ultra Short Term Fund Direct Growth

Fund Performance: This fund has given 6.65% annualized returns in the last three years. In the last year, its returns were 4.25%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 4.25% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM5,680Cr
1Y Returns4.3%

HDFC Ultra Short Term Fund Direct Growth

Fund Performance: This fund has given 6.6% annualized returns in the last three years. In the last year, its returns were 3.99%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 3.99% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM16,705Cr
1Y Returns4.0%

Kotak Savings Fund Direct Growth

Fund Performance: This fund has given 6.45% annualized returns in the last three years. In the last year, its returns were 3.73%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 3.73% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM12,698Cr
1Y Returns3.7%

SBI Magnum Ultra Short Duration Fund Direct Growth

Fund Performance: This fund has given 6.28% annualized returns in the last three years. In the last year, its returns were 3.62%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 3.62% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM11,007Cr
1Y Returns3.6%

Invesco India Ultra Short Term Fund Direct Growth

Fund Performance: This fund has given 6.23% annualized returns in the last three years. In the last year, its returns were 3.73%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 3.73% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹1,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹1,000
AUM1,059Cr
1Y Returns3.7%

Mahindra Manulife Ultra Short Term Fund Direct Growth

Fund Performance: In the last year, its returns were 3.74%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 3.74% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹1,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹1,000
AUM181Cr
1Y Returns3.7%

IDFC Ultra Short Term Fund Direct Growth

Fund Performance: This fund has given 6.18% annualized returns in the last three years. In the last year, its returns were 3.44%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 3.44% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹100. Minimum SIP investment amount required for this scheme is ₹100.

Min Investment Amt₹100
AUM4,729Cr
1Y Returns3.4%

L&T Ultra Short Term Fund Direct Growth

Fund Performance: This fund has given 6.1% annualized returns in the last three years. In the last year, its returns were 3.51%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 3.51% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹10,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹10,000
AUM2,100Cr
1Y Returns3.5%

Baroda Ultra Short Duration Fund Direct Growth

Fund Performance: This fund has given 5.95% annualized returns in the last three years. In the last year, its returns were 3.81%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 3.81% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹5,000
AUM108Cr
1Y Returns3.8%

UTI Ultra Short Term Fund Direct Growth

Fund Performance: This fund has given 5.81% annualized returns in the last three years. In the last year, its returns were 6.95%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 6.95% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹2,500.

Min Investment Amt₹5,000
AUM1,933Cr
1Y Returns7.0%

BOI AXA Ultra Short Duration Fund Direct Growth

Fund Performance: This fund has given 5.81% annualized returns in the last three years. In the last year, its returns were 3.36%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 3.36% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹1,000.

Min Investment Amt₹5,000
AUM238Cr
1Y Returns3.4%

DSP Ultra Short Fund Direct Plan Growth

Fund Performance: This fund has given 5.67% annualized returns in the last three years. In the last year, its returns were 3.64%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 3.64% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹500. Minimum SIP investment amount required for this scheme is ₹500.

Min Investment Amt₹500
AUM3,224Cr
1Y Returns3.6%

Principal Ultra Short Term Fund Direct Growth

Fund Performance: This fund has given 5.6% annualized returns in the last three years. In the last year, its returns were 3.5%. It has continually hit its benchmark in the Debt segment.

Why to invest: It is one of the most remarkable Debt mutual funds in India. This fund has constantly outperformed other similar funds, providing 3.5% returns in the last one year. Minimum lump sum investment amount required to invest in this scheme is ₹5,000. Minimum SIP investment amount required for this scheme is ₹2,000.

Min Investment Amt₹5,000
AUM106Cr
1Y Returns3.5%

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