Best Ultra Short Term Funds in India 2026
The ultra short term funds in India are open-ended debt mutual fund schemes with a Macaulay duration of 3 to 6 months, as defined by SEBI. They invest in fixed income instruments such as commercial papers, treasury bills, certificates of deposit, and short-tenure corporate bonds, sitting one step above liquid funds on the duration and return spectrum. Here we will be covering the best ultra short term funds in India, and what to consider when selecting one.
Overview of Top Ultra Short Term Funds in 2026
| Name | AUM (Rs. in cr.) | CAGR 5Y(%) | CAGR 3Y(%) | NAV(₹ per unit) | Alpha | Absolute Returns - 1Y(%) | Volatility | Tracking Error(%) |
|---|---|---|---|---|---|---|---|---|
| Nippon India Ultra Short Duration Fund | 10,937.99 | 7.36 | 7.57 | 4,733.38 | 0.2 | 6.78 | 0.38 | 0.13 |
| UTI Ultra Short Duration Fund | 3,996.87 | 7.00 | 7.30 | 4,828.29 | 0.82 | 6.41 | 0.36 | 0.43 |
| ICICI Pru Ultra Short Term Fund Fund | 16,002.16 | 6.62 | 7.40 | 31.85 | 0.82 | 6.54 | 0.40 | 2.18 |
| Aditya Birla SL Savings Fund | 19,611.34 | 6.60 | 7.48 | 593.20 | 0.86 | 6.50 | 0.43 | 0.48 |
| Axis Ultra Short Duration Fund | 6167.96 | 6.58 | 7.40 | 16.60 | 0.78 | 6.47 | 0.38 | 2.15 |
| Tata Ultra Short Term Fund | 5,712.94 | 6.58 | 7.46 | 15.86 | 0.19 | 6.73 | 0.38 | 0.13 |
| Mirae Asset Ultra Short Duration Fund | 1419.73 | 6.50 | 7.40 | 1404.97 | 0.84 | 6.49 | 0.39 | 0.45 |
| DSP Ultra Short Fund | 4711 | 6.47 | 7.38 | 3933.60 | 0.03 | 6.44 | 0.41 | 0.17 |
| Baroda BNP Paribas Ultra Short Duration Fund | 775 | 6.46 | 7.23 | 1,657.91 | 0.03 | 6.33 | 0.37 | 0.10 |
| Mahindra Manulife Ultra Short Duration Fund | 213 | 6.43 | 7.30 | 1496.78 | 0.09 | 6.45 | 0.36 | 0.10 |
Disclaimer: Please note that the above list of the ultra short term mutual funds in India
is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Mutual Fund Screener and is subject to real-time updates.
Note: The data on the list of the best ultra short duration funds is from 16th June 2026. This data is derived from the Tickertape Mutual Funds Screener.
- 5Y CAGR: Sorted from Highest to Lowest
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Overview of the Top Ultra Short Term Funds
Nippon India Ultra Short Duration Fund
Nippon India Ultra Short Duration Fund is an open-ended ultra-short duration debt scheme. It invests in debt and money market instruments with the Macaulay duration of the portfolio between 3 and 6 months.
UTI Ultra Short Duration Fund
UTI Ultra Short Duration Fund is an accrual-oriented income fund with a diversified portfolio of debt and money market instruments. The scheme maintains a portfolio duration of 3 to 6 months.
ICICI Prudential Ultra Short Term Fund
ICICI Prudential Ultra Short Term Fund is a debt scheme that aims to generate income through investments in debt and money market instruments. Its benchmark is the NIFTY Ultra Short Duration Debt TR INR.
Aditya Birla Sun Life Savings Fund
Aditya Birla Sun Life Savings Fund is an open-ended ultra-short duration debt scheme. The fund invests in debt and money market instruments and belongs to the ultra-short duration category.
Axis Ultra Short Duration Fund
Axis Ultra Short Duration Fund is an open-ended ultra-short duration debt scheme. It invests in instruments where the Macaulay duration of the portfolio is between 3 and 6 months.
Tata Ultra Short Term Fund
Tata Ultra Short Term Fund is an ultra-short duration debt scheme. Its objective is to generate returns by investing in debt and money market instruments with a Macaulay duration between 3 and 6 months.
Mirae Asset Ultra Short Duration Fund
Mirae Asset Ultra Short Duration Fund is an open-ended ultra-short-term debt scheme. It primarily invests in debt and money market instruments and has a portfolio duration range of 3 to 6 months.
DSP Ultra Short Fund
DSP Ultra Short Fund is a debt scheme that invests in money market securities and debt securities. The scheme description states that its Macaulay duration is between 3 and 6 months.
Baroda BNP Paribas Ultra Short Duration Fund
Baroda BNP Paribas Ultra Short Duration Fund is an ultra-short duration debt scheme. It aims to generate regular income by investing in debt and money market instruments with a Macaulay duration between 3 and 6 months.
Mahindra Manulife Ultra Short Duration Fund
Mahindra Manulife Ultra Short Duration Fund is a debt scheme that invests in short-term debt and money market instruments. Its Macaulay duration is maintained between 3 and 6 months.
What is Ultra Short Duration Mutual Fund?
An Ultra Short Duration Mutual Fund is a type of debt mutual fund that invests mainly in debt and money market instruments with a short portfolio duration. As per the category definition, these funds maintain a Macaulay duration of 3 to 6 months.
In simple terms, these funds lend money for a relatively short period by investing in instruments such as treasury bills, commercial papers, certificates of deposit, corporate debt, and other short-term securities. Since the duration is short, they are generally less sensitive to interest rate movements than longer-duration debt funds, but they are still subject to market, credit, and interest rate risks.
How Do Ultra Short Term Funds Work?
Ultra short term debt funds operate as open-ended debt schemes that pool investor money and deploy it into a portfolio of fixed income instruments. The fund manager builds the portfolio so that the weighted average Macaulay duration stays within the SEBI-mandated band of 3 to 6 months at all times.
Returns are generated in two ways. The primary source is the interest income earned on the debt instruments held in the portfolio. The secondary source is capital appreciation or depreciation in the market price of those instruments as interest rates move. When interest rates fall, bond prices rise, adding to the fund’s NAV. When rates rise, bond prices fall, reducing NAV. Because the portfolio duration is kept short, the sensitivity to interest rate moves is meaningfully lower than in longer-duration debt categories.
Taxation on Ultra Short Term Funds
Ultra short term funds are categorised as debt-oriented mutual funds under Indian tax law. The taxation rules changed materially with the Finance Act 2023. The applicable treatment depends on when the units were purchased.
For units purchased on or after 1 April 2023:
All capital gains, regardless of how long you hold the units, are taxed at your applicable income tax slab rate. There is no separate short-term or long-term classification for these units under Section 50AA of the Income Tax Act. Whether you hold for 3 months or 5 years, the gain is added to your income and taxed at your slab.
| Capital Gains | Holding Period | Tax Rate |
| All Capital Gains | Any period | Investor’s income tax slab rate |
| Dividend Income | Any period | Investor’s income tax slab rate (TDS of 10% if dividends exceed Rs 5,000 per year from one fund house) |
For units purchased before 1 April 2023:
| Capital Gains | Holding Period | Tax Rate |
| Short-Term Capital Gains (STCG) | Less than 36 months | Investor’s income tax slab rate |
| Long-Term Capital Gains (LTCG) | 36 months or more | 12.5% without indexation benefit |
| Dividend Income | Any period | Investor’s income tax slab rate |
How to Invest in Ultra Short Term Funds?
You can easily start investing in Ultra Short Term Funds by following these steps:
- To invest in Ultra Short Term Funds, you can visit a mutual fund investment platform such as smallcase.
- The next step is to research and identify the best ultra short term funds that match your investment thesis. Tools like the Tickertape Mutual Fund Screener can help you filter and compare funds based on parameters such as returns, expense ratio, and fund size.
- Once you shortlist the funds, visit smallcase, log in, and search for the fund by name. You can then choose the investment mode, either a one-time lump sum or an SIP plan, and complete the process.
Features of an Ultra Short Duration Mutual Fund
- Short Duration: These funds primarily invest in debt instruments with a short maturity period, typically ranging from a few days to one year. This makes them ideal for investors looking to park their money for a short time.
- Returns: While these mutual funds take a conservative approach, they aim to provide somewhat higher returns than regular savings accounts. These returns are mostly derived from interest income earned by the underlying securities, as well as capital appreciation.
- Investment in Debt and Money Market Instruments: These funds allocate their assets across various debt securities and money market instruments to achieve their investment objectives.
Advantages of Investing in Ultra Short-Duration Mutual Funds
- Low Risk: These funds primarily invest in low-risk debt instruments such as treasury bills, commercial papers, and certificates of deposit, making them relatively safer compared to equity funds. However, returns can still be affected by market factors, interest rate changes, and credit risks, so they are not entirely risk-free.
- Suitable for Conservative Investors: Ultra short mutual funds may be a suitable option for investors with a low-risk appetite who are seeking stable returns over a short period. Keep in mind that while these funds are generally considered low-risk, they still carry some risks, particularly due to market conditions and interest rate fluctuations.
- Diversification: For investors already exposed to equity or other high-risk instruments, ultra short-duration funds can help provide diversification. Diversification can reduce the overall risk of an investment portfolio. However, it’s important to consider that market dynamics and economic changes can still impact the performance of these funds.
Risks of Investing in Ultra Short Term Funds in India
- Interest Rate Risk: Ultra Short Term Funds invest in debt instruments, which are sensitive to changes in interest rates. If interest rates rise, the value of the underlying debt securities may fall, potentially affecting the returns of the fund.
- Credit Risk: These funds invest in debt securities, including corporate bonds and commercial papers, which carry the risk of default. If the issuer of a debt instrument faces financial difficulty, it may fail to meet its payment obligations, leading to a reduction in the fund’s value.
- Reinvestment Risk: Ultra Short Term Funds invest in short-duration securities, and when these securities mature, the fund manager may need to reinvest the proceeds. If interest rates have dropped since the original investment, the new investments may offer lower returns.
- Market Risk: Like any mutual fund, Ultra Short Term Funds are still exposed to broader market risks, particularly in times of economic volatility. For instance, a significant market downturn or economic slowdown can negatively impact the performance of ultra short duration debt funds.
Factors to Consider While Investing in Ultra Short Term Funds
- Investment Horizon: Ultra Short Duration Funds typically focus on short-term investments, generally ranging from a few days to one year. These funds invest in debt instruments with shorter maturities, which may appeal to those looking to park funds for a limited time.
- Risk Tolerance: Low-risk short-term funds invest in debt securities and are generally less volatile than equity funds. However, they still carry risks related to interest rates and credit. Therefore, investors should assess their risk tolerance before opting for ultra short term funds.
- Credit Quality of Underlying Securities: The credit risk of short-term debt funds depends on the quality of the debt instruments held within the portfolio. These funds typically invest in a range of corporate bonds, treasury bills, and other debt securities, each carrying different levels of credit risk based on the issuer’s financial health.
- Interest Rate Outlook: Ultra short mutual funds are sensitive to changes in interest rates. As interest rates fluctuate, the value of the debt securities held by these funds can change. Rising rates, for instance, may lead to a reduction in the market value of existing securities.
- Expense Ratio: When considering ultra short duration debt funds, it’s important to review the expense ratio, which is the annual fee charged by the fund manager. A higher expense ratio can reduce the returns earned by investors, especially in funds with lower overall returns.
Who Should Invest in Ultra Short Term Funds?
- Investors with Short-Term Financial Goals: Ultra short term funds suit investments with a short-term horizon, typically from a few months up to one year. Investors saving for near-term goals, such as a vacation, an emergency fund, or other short-term expenses, may consider ultra short term funds.
- Risk-Averse Investors: Ultra short duration funds show less volatility than equity funds under favourable market conditions, making them suitable for risk-averse investors. These funds still carry some risk, especially from interest rate changes or credit risk.
- Investors Seeking Portfolio Diversification: Individuals with significant equity exposure can use ultra short duration funds to add debt securities to their portfolio, helping balance risk and diversify investments.
To Wrap It Up…
Ultra Short Duration Mutual Funds are a strategic investment choice for those seeking a low-risk option with liquidity and the potential for modest returns. However, they also carry risks, and under unfavourable circumstances may not generate the expected returns. Therefore, evaluating these funds and factors related to their performance can help investors make a more informed decision when considering ultra short term funds.
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Frequently Asked Questions(FAQs) on Ultra Short-Term Funds
Ultra short term mutual funds are open-ended debt mutual fund schemes regulated by SEBI, defined as schemes where the portfolio’s Macaulay duration stays between 3 and 6 months. They invest in money market instruments and short-term fixed income securities such as commercial papers, treasury bills, certificates of deposit, and short-term corporate bonds. These funds are designed for investors with a 3 to 12-month investment horizon who want returns above a savings account while retaining liquidity
The best mutual fund for short-term investments depends on individual factors such as risk tolerance and investment goals. Ultra short-term fund is one of the short-term investment options, but it also carries risks related to interest rates and credit, which may affect returns.
Ultra short term funds and fixed deposits work differently. FDs usually offer fixed returns over a chosen tenure, while ultra short term funds invest in short-term debt and money market instruments with returns that may vary based on market conditions. Ultra short term funds may also carry interest rate risk and credit risk, whereas bank FDs are generally considered more predictable. The choice depends on factors such as liquidity needs, risk profile, tax treatment, and investment horizon.
Disclaimer: The above information is for educational purposes only and should not be considered investment advice.
It varies from fund to fund. Some ultra short-term funds may charge an exit load if the units are redeemed within a specified holding period, while others may not. It’s important to check the specific terms and conditions of the fund before investing.
Ultra Short Duration Mutual Funds invest in debt and money market instruments with maturities ranging from 3 to 6 months, targeting financially strong borrowers and government securities.
Liquid funds and ultra short-term funds are both types of debt mutual funds that invest in short-term investments. However, liquid funds mainly invest in very short-term instruments, such as overnight deposits and treasury bills, which have a very short duration. On the other hand, ultra short-term funds invest in debt securities with slightly longer durations, usually up to one year.
To track the ultra short term fund NAV, you can use the Tickertape Mutual Fund Screener. This tool comes with 50 pre-loaded filters, allowing you to easily check the NAV and other important metrics such as returns, expense ratio, and risk indicators.
Ultra short term funds and fixed deposits work differently. FDs usually offer fixed returns over a chosen tenure, while ultra short term funds invest in short-term debt and money market instruments with returns that may vary based on market conditions. Ultra short term funds may also carry interest rate risk and credit risk, whereas bank FDs are generally considered more predictable. The choice depends on factors such as liquidity needs, risk profile, tax treatment, and investment horizon.
Disclaimer: The above information is for educational purposes only and should not be considered investment advice.
Most ultra short term funds process redemptions on a T+1 basis, meaning the money is credited to your bank account on the next working day after you place the redemption request. Some funds may have T+2 settlement. This makes them significantly more liquid than fixed deposits, which carry a premature withdrawal penalty. There is generally no exit load on redemption from ultra short term funds.
Disclaimer: The above information is for educational purposes only and should not be considered investment advice.
For units purchased on or after 1 April 2023, all capital gains from ultra short term funds are taxed at the investor’s applicable income tax slab rate, regardless of how long the units are held. There is no separate long-term capital gains rate for such units. For units purchased before 1 April 2023 and held for 36 months or more, gains are taxed at 12.5% without indexation. Dividends are taxed at slab rate, with TDS of 10% applicable if dividends from a single fund house exceed Rs 5,000 in a financial year.
The average return of ultra short term funds can vary across time periods and market conditions. The ultra short duration funds have delivered average returns of around 5.78% p.a. over 1 year, 6.62% p.a. over 3 years, and 5.83% p.a. over 5 years. These returns are not fixed or guaranteed and may change based on interest rates, credit quality, and the fund’s portfolio
Disclaimer: The above information is for educational purposes only and should not be considered investment advice.
