Liquid and ultra-short-duration funds: Party continues for now

The liquid and ultra-short-duration funds categories are having a ball. Really. Ending 2023 on a solid note with returns above 7 per cent, these funds have been on a tear. When you look at these returns in comparison to your bank deposits, liquid, overnight and ultra-short duration funds are miles ahead. Interestingly, their performance rivals corporate bond, short-duration and medium-duration funds. Since the interest rates have been lingering on the higher side, liquid and ultra-short duration funds' performance is at par with the likes of short-duration funds. The higher rates have allowed these funds to continue investing in bonds that offer higher returns. All in all, the money you need to meet your very near-term goals should be parked in liquid and ultra-short-duration funds. Here's an example of why you should: Say you plan to buy a house in six months and have amassed Rs 25 lakh in your savings bank account for the down payment. A top banks' savings accounts would, by and large, yield 3.5 per cent per annum versus upwards of 6 per cent offered by liquid funds. Meaning, your pre-tax savings will be around Rs 30,000 more over the six-month period. While the difference isn't transformational, you'd earn additional income without putting your money at great risk. In additio