Ultra short term bond fundsTata Mutual Fund has launched a new fund offer (NFO) in ultra short term funds category namely Tata Ultra Short-Term Fund. The NFO will open for subscription on January 11, 2019 and close on January 21, 2019. This fund endeavours to generate returns through investment in debt and money market instruments such that Macaulay duration of the portfolio is between 3-6 months.

(Economist Frederick Macaulay suggested ‘duration’ as a way of determining the price volatility of bonds. Duration is defined as the average time it takes to receive all the cash flows of a bond. It is also a measure of sensitivity towards interest rate changes in the economy.)

Owing to cap on the Macauley duration, the fund will have lower volatility. Moreover, as the securities in this fund will mature in 3-6 months, in a rising interest rate scenario, new securities with higher yield will keep getting added continuously. Thus, improving the overall return experience.

The fund will invest up to 100% of its assets in debt and money market instruments maturing in 3-6 months. Most of the ultra short-term funds in the industry have high quality portfolio. Tata Ultra Short-Term Fund follows a top down approach taking into account aspects like interest rate view, term structure of interest rates, systemic liquidity, RBI’s policy stance, inflationary expectations, government borrowing program, fiscal deficit, global interest rates, currency movements, etc.

The fund is benchmarked against CRISIL Ultra Short-Term Bond Index. One year performance of the index as on December’18 is 7.92% while the category average on one-year basis is 5.95% as on date. However, the top players in this category like Reliance Ultra Short Duration Fund, SBI Magnum Ultra Short Duration Fund, Franklin India Ultra Short Bond Fund, DHFL Pramerica Ultra Short-Term Fund have delivered almost ~8% for the year.

The scheme will be managed by Akhil Mittal who has over 17 years of experience. He is managing several other open-ended as well as close-ended schemes at Tata Mutual Fund.

Key Features of the fund:

NFO Period 11 January, 2019 to 21 January, 2019
Scheme Re-opens On or before Not Later Than 28 January, 2019
Type of Scheme An open ended ultra short term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 3 months and 6 months.
Benchmark CRISIL Ultra Short-Term Debt Index.
Min Application Amount Rs 5,000 and in multiples of Rs 1/- thereafter.
Plans and options Regular & Direct Plans Under which following Options are offered
-Weekly Dividend (Payout & Reinvestment)
-Monthly Dividend (Payout & Reinvestment)
Exit Load Nil
Risk Profile Moderately Low Risk
Investor Suitability This product is suitable for investors who are seeking
• Regular Income Over Short Term
•Investment in Debt & Money Market instruments such that the Macaulay Duration of the portfolio is between 3 months – 6 months.

RupeeIQ take: Ultra short-term funds offer investors a great investment avenue for parking their short-term corpus. Typically, these funds target to outperform liquid funds by 25 bps (1 basis point is 1/100th of a percentage). Tata Ultra Short-Term Fund is suitable for investors who seek low risk, low volatility product with high liquidity and optimum returns over an investment horizon of 3-6months.

Disclaimer – Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.

Priyanka Bharati

Priyanka Bharati is a senior personal finance analyst with RupeeIQ. She can be reached on priyanka.bharati@rupeeiq.com