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Should I invest in a liquid or an ultra short-duration fund?

Dhirendra Kumar tells the ideal fund category for three to six months


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I want to park my money for a period of three to six months. Please advise whether I should invest in a liquid or an ultra short-duration fund?
- Santosh

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If you want to park your money for a period of three to six months, it would be better for you to invest in an ultra short-duration fund, as you would get better returns. Nevertheless, there is a difference in the risk profile of both categories. Liquid funds cannot invest in the bonds having a maturity period of more than 91 days. On the other hand, ultra short-duration funds can invest in the bonds having a higher duration. However, since ultra short-duration funds can take some risks, there is a possibility of a loss at times. But having said that, the possibility of a loss has materialised only for a very few times. So, for a period of three to six months and for a higher return, you should invest in an ultra short-duration fund.

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