Ultra Short Duration Mutual Funds

A 3 to 6 month Macaulay duration means the fund's holdings, taken together, pay their money back in 3 to 6 months on average. That average is the portfolio's Macaulay duration, and SEBI's rule keeps it inside the band.

This is a debt fund. It lends by buying bonds and similar paper from governments, banks and companies. Each loan pays interest and then returns the amount lent.

SEBI describes the category as "Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 months to 6 months". In plain terms, the average sits between a quarter of a year and half a year.

SEBI gives no definition of Macaulay duration. Every scheme must explain the idea in its own offer document and quote one figure for the whole portfolio.

In plain words, Macaulay duration is the average time, in years, until you get a bond's payments back, weighted by what each is worth today. For a fund, SEBI averages every holding's duration, and bigger holdings count for more.

• It is an average. The band is an average across the whole portfolio, not a limit on each bond it holds.
• It is SEBI's yardstick for interest-rate risk. That is the chance that a change in interest rates changes the value of the bonds a fund holds. A longer duration earns a higher risk score.

At the end of August 2026, the funds on this list held mostly certificates of deposit and commercial paper, short IOUs from banks and companies. They also held corporate bonds. That was the funds' own choice that month, not a SEBI rule. SEBI does bar this category from infrastructure investment trusts.

SEBI renamed these categories in February 2026, and fund houses had until 26 August 2026 to rename their schemes. This one is now the Ultra Short Term Fund. Some schemes keep a brand word too.

You face no lock-in, meaning no stretch of time when selling is barred.

An ultra short duration fund is limited by the average duration of its whole portfolio. Liquid and money market funds are limited by how soon each holding matures. Maturing means falling due for full repayment. This is the first category set by a duration band.

• Liquid funds: each holding matures within 91 calendar days, and at least 20% of net assets must be in liquid assets.
• Money market funds: money market instruments that mature within 1 year; at least 10% held in liquid assets.
• Ultra short duration funds: a portfolio Macaulay duration of 3 to 6 months, with the same 10% floor.

Net assets means the fund's total value. Liquid assets are cash, government securities (G-secs), treasury bills (T-bills) and repo on G-secs, which are short loans secured on government paper.

Two liquid-fund features do not carry over. The first is the graded exit load, a fee some funds charge if you sell within a set time after buying. Liquid funds must charge it on exits within 7 calendar days, from 0.0070% on day 1 down to nil on day 7. SEBI sets no load for this category.

The second is the Instant Access Facility. It pays the lower of ₹50,000 and 90% of your holding on the same day. SEBI allows it only in overnight and liquid schemes.

All three value holdings at market prices from valuation agencies.

Yes, an ultra short duration fund can fall in value, because each holding is priced at market value every day. So the NAV, the price of one unit, can slip as well as climb.

Interest rates play a part. When interest rates rise, bond prices tend to fall, and when rates fall, prices tend to rise. SEBI's investor website says so.

The riskometer shows how much risk SEBI's formula finds. It is the label every fund must display, on six levels from Low to Very High, reviewed monthly. For debt, SEBI rates the whole portfolio on three risks and takes the average:

• credit risk, the chance that a borrower pays late or does not pay back;
• interest-rate risk, scored from the portfolio's Macaulay duration;
• liquidity risk, the chance that a fund cannot sell a holding quickly at a fair price. When it scores above the average, that higher score counts.

Any duration up to half a year scores 1. Inside its band, an ultra short duration fund scores 1 out of 6 on the interest-rate part of the riskometer, the lowest score. Its level therefore rests on credit and liquidity.

Most listed ultra short duration funds read Low to Moderate on 29 September 2026; the rest read Moderate.

SEBI's rule for this category is about duration only. A credit rating is a rating agency's opinion of how likely a borrower is to repay on time. SEBI sets no minimum rating here; the fund's PRC cell shows the most credit risk it may take. The Potential Risk Class (PRC) is a grid of 9 cells, and every debt fund sits in one. Its fund house picks the cell as an upper limit on duration and credit risk, and prints it beside the scheme name.

If a fund's riskometer level moves, you must hear of it by email or SMS.

Koshex suggests it for money you can leave for 3 to 6 months or more, in line with the duration band. It is Koshex's view, not a SEBI rule. Money kept for a family holiday about five months away is the kind of timeline we mean.

Cash you may want within days is a different case. Only overnight and liquid funds may offer same-day access. Here, redemption, selling units back to the fund, may need up to 3 working days to pay out.

For six months to a year, Koshex suggests low duration funds, which run a portfolio duration of 6 to 12 months. SEBI now calls them Ultra Short to Short Term Funds.

Short does not mean smooth. Prices change daily, and some funds on this list read Moderate.

Koshex, an AMFI-registered distributor (ARN-154632), is a registered intermediary that helps you buy and manage funds. With us you invest in the regular plan, the plan you buy through a distributor who helps you choose and stays with you after. We help you choose a fund that suits your goal and timeline.

On units bought on or after 1 April 2023, the full gain is charged at your slab rate, whatever the time held. That is the rate charged on your normal income.

The Income-tax Act, 2025 sets this out in section 76. More than 65% of the fund is in debt and money market instruments, so it counts as a Specified Mutual Fund.

Your holding period, the time you have owned a unit, matters only for older units. Older units, bought before 1 April 2023, pay slab rate if sold within 24 months. Sold after 24 months, those older units pay 12.5% without indexation, so the purchase price gets no inflation adjustment.

Take an assumed gain, not a forecast. Say you bought units in March 2026 and redeem them in August 2026 with a ₹14,000 gain. Cess adds 4% to the tax. We leave out surcharge, which is added to the tax only once total income passes ₹50 lakh.

• Post-April-2023 units, 20% top slab, no surcharge: ₹2,800 plus ₹112 cess, ₹2,912 in all.
• Post-April-2023 units, 30% top slab, no surcharge: ₹4,200 plus ₹168 cess, ₹4,368 in all.

A resident's redemption has no TDS, tax deducted at source before money reaches you. You settle the tax through your return for the tax year.

IDCW is a payout from the fund's income or gains. Paying it lowers the NAV by the same sum. It is taxed at your slab rate as part of your income. Once your IDCW from a fund house crosses ₹10,000 in a tax year, it deducts 10% TDS on the whole amount. TDS is credited against your tax for the year. Choose the growth option and no payout happens.

Look first at the 3-year and 5-year CAGR, the average yearly growth over each period, then at the riskometer, expense ratio and AUM beside it. There are 35 listed ultra short duration funds; the table shows the top 10 for whichever ranking you select. 24 of the 35 have a 3-year record, and just these are ranked on 3-year return and counted in the averages.

The list also includes a few index funds that track short-term debt indices of a similar duration. SEBI treats index funds as a separate category, so they follow an index rather than this category's rules.

• CAGR: the average yearly growth rate over a period, as if the fund had grown at the same pace each year. Funds with a 3-year record averaged 6.5% a year over three years. Those that also have a 5-year record averaged 6.4% over five. Both are past figures.
• Riskometer: a return means more when you know the risk level it came with.
• Expense ratio: what the fund charges each year, shown as a percentage of your money and taken from its value. A lower fee means less taken from your return.
• AUM: assets under management, the present value of all the money a fund runs. Together the listed funds manage ₹1,39,955 Cr.

A few checks sit outside the table. SEBI does not set an exit load for this category. Each fund sets its own, if any, in its scheme document; many charge none. There is no lock-in.

Look for the PRC cell in bold near the scheme name on the application form. Fund factsheets usually show the portfolio's Macaulay duration and its yield to maturity (YTM). That is the return the bonds would give if held to maturity at today's prices.

If the money is already in hand and the date is fixed, a lumpsum, one larger payment at a single time, is the usual fit.

A SIP suits money that arrives in pieces. You put in a fixed amount at set intervals, often monthly, and the pot grows with each one.

Every SIP instalment buys units at that day's NAV and has its own holding period. Any unit bought today is dated after 1 April 2023. So slab rate will apply to its gain whenever you sell.

Think about the way out as well. Payment may need up to 3 working days to arrive. So we suggest asking for your money a few working days ahead of the due date.

Koshex reviews your holdings as time passes. We flag it to you when a fund's category, risk level or ranking shifts.