Whats are Short Term Mutual Funds

Short Term Mutual Funds

Mutual funds offer a variety of options that fulfil almost every investor’s need. But this variety sometimes leads to confusion. For example, overnight funds, liquid funds and ultra-short duration funds. All three are low risk, low return investment options meant for short-term investment.

However, there are subtle differences between the three, making them suitable for different circumstances. In this article, we will explore each fund to establish a clear difference between the three.

Overnight funds

Overnight funds invest in debt securities maturing the next day like overnight reverse repo and collateralized bonding and lending obligation (CBLO). They are the safest funds in the whole mutual fund universe. The returns are comparable to that offered by savings accounts. Instant withdrawal facility was recently extended to the fund category.

Liquid funds

Liquid funds invest in debt instruments like certificates of deposits, treasury bills and commercial paper that have maturity of fewer than 91 days. The risks are negligible and returns are similar to that offered by savings accounts. Liquid funds come with instant withdrawal facility, which means investors can withdraw up to Rs 50,000 from liquid funds instantly as opposed to 1-2 days in case of other fund categories.

Ultra-short duration funds

These funds invests in securities like treasury bills, commercial papers and certificate of deposits that have a maturity period between 3-6 months. They provide reasonable returns with sufficient liquidity. The returns are higher than that of overnight and liquid funds but it comes at a slightly higher risks.