Dhirendra Kumar discusses the things to consider while selecting an ultra-short-duration fund
Click here to watch the video
If I want to invest in an ultra-short-duration fund, should I invest in a single fund or choose two-three funds? Also, how should one interpret credit-rating details of a fund?
If you intend to invest for a few months to a year, then you must go for the ultra-short-duration category. With regard to your second question, credit rating evaluates the credit risk of a company in terms of its financial health, predicting its ability to repay the debt. Based on all these factors, a credit rating agency assigns a credit rating to companies' debt instruments.
But be mindful of two things. First, ensure that the chosen fund is least exposed to AA and below-rated papers. Second, do not chase the recent performance of any fund. Investors usually select a fund with the highest performance in the recent past. Having said that, when it comes to debt funds, do not invest in the fund giving highest returns. This is because a high return is, at times, an outcome of high risk, which must be avoided in the case of debt funds where the key driver is the safety of your capital.
Answering your first question, you can definitely invest in more than one fund as and when your investment amount increases. So, if you want to invest Rs 5 lakh, you may divide it equally into two funds. If you have a big amount of Rs 20 lakh and it is important, you may well spread it across four-five funds.