Amid the noise of crisis in the debt fund space, Sundaram Mutual has launched an open ended fund in the ultra short term category. The new fund offer (NFO) of Sundaram Ultra Short Term Fund was opened on June 14, 2019 and will close on June 20, 2019. The units would be allotted by June 24, 2019 and the scheme will be reopened for further transactions from June 27, 2019.
Despite the recent crisis that adversely affected some debt fund schemes, high liquidity and tax benefits on long-term capital gains keep advantage of such funds intact over other fixed return options. As debt funds don’t invest much in equities, such funds are remain unaffected by turmoil in stock markets and are considered relatively safe.
Funds like overnight funds, liquid schemes, ultra short term funds, low duration funds, short term bond schemes, corporate bond schemes and credit risk funds are part of Accrual Debt Fund category, which are considered to be safe and can be considered as better and tax efficient alternative to bank fixed deposits, said Financial Coach & Corporate Trainer Prof. Rahul Ranjan.
It is an open-ended fund that will investment predominantly in high credit quality papers of debt and money market instruments with Macaulay Duration between 3-6 months. The duration of the debt instruments are kept short to lower the interest rate risk.
The minimum investment amount is Rs 1,000 and thereafter in multiple of Re 1. The investors may withdraw their investments anytime, as there will be no lock-in period and entry or exit loads.
The fund will be managed by Siddharth Chaudhary and Sandeep Agarwal, and both the fund managers have good experience of about seven years in managing debt funds.
Because it is a new fund, the investment portfolio will only be available after actual investments are made once the NFO period is over. However, according to the offer documents, the proportion of the scheme portfolio invested in each type of security will vary in accordance with economic conditions, interest rates, liquidity and other relevant considerations, including the risks associated with each investment.
As the performance of the scheme will depend on the Asset Management Company s ability to assess accurately and react to changing market conditions, it is expected that taking cues from recent setbacks some debt funds suffered following failures of bonds of some big and reputed groups like IL&FS, Essel Group, Reliance ADAG and most recently that of DHFL the experienced fund managers would act prudently to minimise the risks through a well spread portfolio consisting of high-quality papers.
It would be suitable for investors looking for a fund that aims at generating reasonable returns over the short term, along with providing high liquidity and low-volatility.
Basically, Ultra short Funds invest in the money market securities and other debt instruments of short maturities. An investor can hope for sound returns of around 7-9 per cent from Ultra Short Term funds. However, in case of dividend payout option, Dividend Distribution Tax (DDT) is deducted at the source by fund houses, which is 25 per cent in case of Debt Funds like Ultra Short Term Funds, said Alankit Ltd MD Ankit Agarwal.
As debt funds invest in instruments having fixed maturity value and maturity period, unlike debt funds with fluctuating NAVs, such funds provide predictable and stable return having a linear return curve. As a result, like FDs, earlier you invest, higher will be return, as there is no scope of time the investment. So, there is no harm in investing early during the NFO period as you will get desired number of units with NFO price of Rs 10 per unit.
Sundaram Ultra Short Term Fund would be a favourable fund option for safe investment. Ultra short-term funds can be compared to liquid funds. These are fund classes that provide more liquidity than other funds. Ultra Short Term Funds are short term investments which are regarded as highly viable option for investors who are ready to see a marginal increase in the risk of investment in order to acquire good returns, said Agarwal.