Such mutual funds pick investment bonds / debt so that the average portfolio maturity (residual) is about 3 and 6 months (Macaulay duration).
Shorter long-term funds can yield lower returns but are less risky for changes in interest rates. Experts suggest that investors should use ultra-short-term
funds instead of liquid funds for both short-term investment needs and systematic transfer plans (STPs). Say you'd like to spend a lump sum in an equity fund.
Now, instead of putting all your cash into a one-time lump sum investment in the equity fund, it is advisable to put the money into an ultra-short-term fund
(belonging to the same house of the fund). You can then give your fund manager instructions to switch to your equity fund a regular sum each month.
Ultra Short Duration Fund :
These mutual funds select investment bonds / debt so that the average portfolio maturity (residual) is between 3 to 6 months (Macaulay).
Shorter long-term funds may yield lower returns but are less risky to changes in interest rates.