ITI Ultra Short Duration Fund NFO – Review
ITI mutual fund has launched ultra short duration fund now. The ultra Short duration fund invests in debt instruments that has a maturity of 3 to 6 months. These short duration funds are considered to be better than bank FD. Post Franklin debt mutual funds fiasco, investors are concerned about investing in debt mutual funds. Should you invest in ITI Ultra Short Duration Fund NFO? What are various risk factors associated with such funds?
Also Read: These 10 Thematic Funds gave up to 160% returns in 1 year
ITI Ultra Short Duration Fund NFO issue details
This is an open ended ultra-short term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 3 months to 6 months. This fund opens for subscription on 19th April, 2021 and closes on 3rd May, 2021.
| Scheme Opens | 19-Apr-21 |
| Scheme Closes | 03-May-21 |
| Scheme reopens for continuous purchase/sale | Within 5 days after closing date |
| Minimum Lumpsum | Rs 1,000 |
| Minimum SIP | Rs 1,000 |
| NAV of the fund | Rs 10 during NFO period |
| Entry Load | Nil |
| Exit Load | Nil |
| Risk | Low to Moderate |
| Max expense Ratio (TER) | 2.00% |
| Benchmark | NIFTY Ultra Short Duration Debt Index |
ITI Ultra Short Duration Fund SID
What is the investment objective of this MF scheme?
The investment objective of the Scheme is to generate regular income and capital appreciation through investment in a portfolio of short term debt & money market instruments such that the Macaulay duration of the portfolio is between 3 – 6 months.
There is no assurance or guarantee that the investment objective of the scheme will be realized.
What is the allocation pattern in this mutual fund?
This fund investment pattern is as follows:
| Type of instruments | Min % | Max % | Risk Profile |
|---|---|---|---|
| Debt and Money Market Instruments | 0% | 100% | Low to Medium |
Why to invest in the ITI Ultra Short Duration Fund?
Here are a few reasons to invest in such debt funds.
1) This funds invests in AAA/A+ rated instruments which are considered to be relatively safe investments.
2) Ultra short duration funds would invest in fixed income debt instruments which would mature in 3 to 6 months. If your objective is to invest for this period, you can invest.
3) Ultra short duration funds have provided stable returns in the past. If you are looking for returns higher than bank FDs, one can invest in such funds.
4) This fund invests in high liquid investments.
Some key risk factors you should consider before you invest in such funds
One should consider some of these risk factors / negative factors before investing.
1) Fixed income securities such as bonds, debentures and money market instruments run price-risk or interest-rate risk. Generally, when interest rates rise, prices of existing fixed income securities fall and when interest rates drop, such prices increase. The extent of fall or rise in the prices is a function of the existing coupon, days to maturity and the increase or decrease in the level of interest rates.
2) Since it invests in debt instruments, these would carry credit risk, default risk and liquidity risk. For investments in government securities, there is no credit risk.
3) The scheme may invest in fixed income derivatives up to 35% of the net assets of the scheme for the purpose of hedging and portfolio balancing purposes which there is risk.
4) You can refer complete risk factors of investing in this particular scheme in SID / KIM / NFO prospectus.
Performance of existing Ultra short duration funds
Let us look at existing funds from this segment and their performance in the short term.
| Fund Name | 3 Months | 6 Months | 1 Year |
|---|---|---|---|
| ICICI Prudential Ultra Short Term Fund | 1.1% | 2.1% | 5.9% |
| HDFC Ultra Short Term Fund | 1.0% | 1.8% | 5.5% |
| SBI Magnum Ultra Short Duration Fund | 0.9% | 1.7% | 4.9% |
| Nippon India Ultra Short Duration Fund | 1.2% | 2.4% | 4.9% |
| UTI Ultra Short Term Fund | 0.9% | 1.8% | 4.7% |
| PGIM India Ultra Short Term Fund | 0.9% | 1.7% | 4.7% |
| IDBI Ultra Short Term Fund | 0.8% | 2.0% | 4.7% |
| Mahindra Manulife Ultra Short Term Fund | 0.9% | 1.6% | 4.7% |
| HSBC Ultra Short Duration Fund | 0.9% | 1.7% | 4.6% |
| IDFC Ultra Short Term Fund | 0.9% | 1.6% | 4.5% |
Also Read: This Water related Aqua Fund gave 15% annualised returns in last 5 years and 12 years
Should you invest in ITI Ultra Short Duration Fund NFO?
ITI Ultra Short Duration Fund invests in debt & money market instruments where Macaulay duration of the portfolio is between 3 months to 6 months. Ultra short duration funds can provide higher returns compared to bank fixed deposits for short term. If you have surplus funds and need to utilize this in the next 3 to 6 months, you can invest in such short duration mutual funds. One can expect 5% to 8% annualised returns, though not guaranteed.
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Hi Suresh ji,
Can you please shed some light on the upcoming India Grid Trust – NCD bonds offering interest rate of 8.2%
Thank you for considering.
Regards
Sreeram
Hello Sreeram, This indictes that you are not following myinvestmentideas regularly 🙂 We already posted this 2 days back. https://myinvestmentideas.com/2021/04/india-grid-trust-ncd-issue-april-2021-indigrid-trust-ncd-review/
My bad
Hello Sir,
How does compounding work for mutual fund?
Can you please give an illustration for understanding purpose?
Let me write an article on this Vishwanath
The risk in these type of Short term debt funds is default risk by the organization issuing the Instruments. As rightly pointed by Mr. Suresh if it is Government Securities there is no risk. We have to see the composition of their investment in debt instruments Government,PSU,Public Sector Banks and Private Sector.