Purpose of Ultra Short-Term Mutual Funds
The primary purposes of Ultra Short-Term Mutual Funds (USTMFs) are essential to understand their significance, in an investors portfolio:
1. Liquidity: USTMFs aim to offer investors liquidity. Unlike long term investments or fixed deposits USTMFs allow for redemption of units. This flexibility is particularly beneficial for individuals who may require access to their funds or wish to temporarily park surplus cash without worrying about long term commitments.
2. Safety: The principle of safety is fundamental to USTMFs. These funds cater to risk investors by investing in risk high quality debt instruments. While USTMFs are relatively safe, it is important to note that they still carry some level of risk and there is a possibility of returns fluctuating.
3. Returns: USTMFs strike a balance between safety and returns by offering returns compared to traditional savings accounts. This makes them suitable for individuals seeking both the security of their investment and the potential, for earning a little more on their funds. By considering these purposes investors can better appreciate the role that USTMFs play in managing their portfolios.
4. Diversification: USTMFs provide the advantage of diversification. When you invest in a USTMF you are essentially spreading your investment across money market and debt instruments. This diversification helps minimise the impact of any events that may affect a single issuer.
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