liquid fund vs ultra short fund

Mutual funds may be suitable for different investment durations. Ultra short-duration funds and liquid funds are two sub-categories in the debt mutual fund category that may be suitable for short-term goals. These funds are chosen for their safety and ability to yield relatively more than conventional savings options like fixed deposits and savings accounts. However, they vary in terms of maturity terms, risk level, and mode of investment. Understanding the difference between liquid funds and ultra-short-duration funds enables investors to make decisions based on their investment objectives. This article explains liquid funds vs ultra short-duration funds.

What is a Liquid Mutual Fund? –

A liquid fund is a category of debt fund that invests in fixed-income securities like government securities, commercial paper, and treasury bills. Liquid funds have a short maturity period, ranging up to 91 days and can be invested for quick access to funds. The net asset value (NAV) of a liquid fund is computed daily, even on weekends and holidays. Withdrawals from these funds are normally done within 24 hours. Liquid funds may tend to have relatively less interest rate risk in comparison to other debt funds.

What is an Ultra Short-Duration Fund? –

An ultra short-duration fund is a debt mutual fund that invests in money market instruments and debt securities. The Macaulay duration of these funds is three to six months. These funds are considered by investors seeking short-term investment options as they follow strategies to manage market fluctuations. These funds aim to generate stable returns with a lower risk than long-term debt funds. An ultra short-duration fund can be an option for those looking for an alternative to liquid funds. Investors should consider an ultra short-duration fund after assessing their personal investment goals and financial requirements.

Liquid Funds Vs Ultra Short-Duration Funds: Key Differences –

The table below highlights the differences between liquid funds and ultra short-duration funds based on various factors:

Should I Invest in a Liquid or an Ultra Short Duration Funds? –

Investment in ultra short-duration funds or liquid funds is based on an investor's short-term investment plans and idle surplus (extra funds not needed for immediate expenses). Understanding the credit and interest rate-related risks also plays a vital role before making the decision. Liquid funds may be appropriate for people who have enough savings in their current accounts and need to invest in short-term schemes. Investors looking for stability in short-term investments often prefer liquid funds. Investors who get incentives and bonuses may invest in liquid funds for future returns.

Ultra short-duration funds may be suitable for investors who want to invest for six months or less. They can be utilised for systematic transfer plans (STPs), where an investor transfers a fixed amount from a debt fund to an equity fund at periodic intervals. This method helps manage investments in a disciplined manner while following a disciplined strategy.

How to Invest in Liquid and Ultra Short-Duration Funds? –

Following are the steps to invest in liquid and ultra short-duration funds:

1. Select a Fund: -

Select a liquid or ultra short-duration fund based on your financial requirements. Visit the official website of Axis MF to get a list of available funds.

1. Select the Mode: -

You have the option to invest online via the Axis Mutual Fund website or physically/offline by visiting their office.

1. Documents for KYC: -

Provide your PAN, Aadhaar, and other info to complete the verification process.

1. Choose the Type of Investment: -

You can choose to either invest through a systematic investment plan or a lump sum.

1. Make Payment: -

You can pay using net banking, UPI, or other available payment options.

1. Allotment of Units: -

Units will be allotted, and confirmation will be sent by email or SMS once your request has been processed.

Conclusion –

Liquid funds and ultra short-duration funds can be suitable for investors with short-term investment horizons. The liquid funds are useful to those who want quick access to their investments, providing a combination of flexibility and stability. Ultra short-duration funds may be suitable for people who can invest for a couple of months. They might offer returns but are subject to risk. The choice between these funds depends on one's financial goals. It is important to consider risks, investment duration, and withdrawal needs before making a decision. Careful planning can enable investors to meet their short-term financial objectives effectively.

Views and opinions contained herein are for information purposes only and should not be construed as investment advice/ recommendation to any party or solicitation to buy, sale or hold any security or to adopt any investment strategy. It does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Axis MF/AMC is not guaranteeing/assuring any returns on investments. The recipient should exercise due caution and/ or seek professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein.�