What is the difference between ultra-short-duration and liquid funds? Is there any difference between their entry and exit load as well?
- Dheeraj
Although both are different types of funds, some instances show a very thin line between the two. By law, a liquid fund invests in debt and money market securities with maturity of up to 91 days only. However, as a usual practice, many liquid funds invest in securities with maturity ranging somewhere between 55 and 60 days. On the other hand, an ultra-short-duration fund can invest in instruments with maturity ranging between three and six months.
Also, new regulations pertaining to liquid funds have been laid down by SEBI. These funds are now required to hold at least 20 per cent of their funds in liquid assets like cash, government securities, T-bills, etc. Also, an exit load will be levied on investors of these schemes who exit these funds within seven days.
By design, liquid funds have remained safer than ultra-short-duration funds. However, these new regulations will help make these funds safer for investors. For the same reason, liquid funds will offer you a lesser return when compared with ultra-short-duration funds.
This article was originally published on August 07, 2019.
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