An Ultra Short Duration Fund holds debt instruments with a portfolio Macaulay duration of 3–6 months — slightly longer than liquid funds, offering marginally higher returns with minimal interest rate risk.
SEBI defines ultra short duration funds as holding instruments with a Macaulay duration between 3 and 6 months. They invest in commercial paper, certificates of deposit, treasury bills, and short-term corporate bonds. The short duration means they have very little sensitivity to interest rate changes. They offer slightly higher returns than overnight and liquid funds in exchange for a slightly longer holding commitment (ideally 3–6 months).
An ultra-short duration fund is one step up from a liquid fund — a little longer holding (3–6 months instead of 91 days), a little higher return, and similar low risk. Good for money you're fairly sure you won't need for the next 3–6 months but don't want locked away. Returns: typically 0.25–0.50% higher than liquid funds annually.
Macaulay duration of portfolio: 3–6 months.
Invests in commercial paper, T-bills, short corporate bonds, bank CDs.
Very low interest rate sensitivity due to short duration.
Exit load: usually none or minimal.
Ideal for parking surplus cash for 3–6 months.