Ultra short-term funds are mutual fund schemes that aim to provide investors an opportunity to earn returns by investing in money market securities. There is a large institutional market where money is borrowed and lent for periods as short as one day, 14 days, a month and 3 months. Ultra short-term funds, named variously as liquid funds, cash management funds, treasury funds and the like, invest in such markets. These funds have a low risk profile and provide high liquidity to investors.

Modes of investing

Investment in a ultra short-term fund can be made by submitting an application format at the official points of acceptance or investor service centres along with the payment instrument. Investments can also be made online from the fund's website or a distributor's online platform.

Minimum investment

The minimum investment limit can be higher for this category of funds that are primarily used by institutional investors.It can range from `5,000 to `100,000.

Redemption

Investors can put a redemption request by filling a transaction form or writing a letter to the fund house and deposit the same at the investor service centre or official point of acceptance of transactions declared by the mutual fund. Redemptions in such funds are usually processed within one day and proceeds are credited to the investor's bank account.

Load

Since such schemes of mutual funds are meant to provide high liquidity to investors, these funds do not carry entry or exit load. It is important to confirm this before making an investment.

Points to note

Some ultra short-term funds offer ATM cards along with the investment to allow easy redemptions subject to certain lim its as prescribed by the fund house.

Redemptions before 3 years attract short-term capital gains tax. However, dividends received in the hands of the investors are tax-free (subject to divi dend distribution tax).