I run a small business and always have some short-term surpluses in a current account. Recently I came to know about ultra short-term funds meant specifically for such deposits. How good are such funds? How fast can I redeem investments?
Atul Ahuja
Ultra short-term funds - also known as cash funds - are designed specifically for needs such as yours. These funds invest in very safe short-term instruments like Treasury Bills, Commercial Paper, Certificate of Deposits, Call Money, FI and PSU bonds, Corporate Debt etc. Currently, the 1-year returns are in the region of 4.5 per cent to 5.48 per cent for the better funds.
These funds are designed for quick redemptions. If you have an account in a bank where the mutual fund can credit your redemption directly, then you will get your cash the same day if you request a redemption before 10:30 am or the next day if it is later than that. Some banks may also offer automated accounts where your money gets swept into such a fund and get automatically redeemed if a cheque is presented.
The dividend schemes of these funds offer monthly, weekly or even daily dividends which are tax free in the hands of investors. However, the dividend amount is subject to tax at an effective rate of 12.82 per cent before the AMC distrubutes it. You should choose a dividend plan if it makes sense in the overall tax picture of your business.
This article was originally published on June 23, 2004.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
