A Bond is a debt security where the borrower issues bonds to raise money from investors willing to lend their money for a certain amount of time. Borrowers pay interest to investors for this and at the time of maturity, bondholders get back the whole amount of principal along with the accumulated interest amount.
Companies, governments, and municipalities issue bonds for getting some funds for various reasons like, investing in any project and initiating new business or any specific reason.
There are various types of bonds in the market. Ultra short bonds are one of them.
What is an Ultra-short bond?
Ultra short means very short in duration and like its name, an Ultra short bond is a mutual fund that invests in fixed income securities with extremely short period maturity. Like other bonds, it is also invested in a wide range of securities including government securities, corporate debts, mortgage-backed securities, and other asset-backed securities.
Ultra short bond funds are more risky products as compared to other funds of the money market and Certificate of Deposits (CDs).
Features of Ultra-short bond
It is an open-ended fund having a very short period of maturity. Though its maturity period is very short, it is longer than that of liquid funds.
Investors can easily buy and sell a unit of the ultra-short fund as per the value of NAV on the redemption day.
NAV of Ultra-short term bond funds-
Buying of ultra short bond funds happens on a (T+0) basis. It means NAV is fixed on the same day as the fund reaches the AMC. Suppose, an investor purchases the fund within the set time limit on Wednesday and if the funds are released on the same day, the applicable NAV would be for Wednesday itself.
Returns of Ultra-short bond funds-
Investors may get their returns in the form of dividends (if it is a dividend fund) or they may get their returns in the form of appreciation of the fund NAV (if it is a growth fund).
Exit load of Ultra-short bond funds-
The period till which the exit load applies, varies from fund to fund. Some ultra-short bond funds may have loads on exit within a very short period (7 days to 1 month) while some may not have any exit loads.
The redemption process is the same as liquid funds. All redemption requests are received within cut-off time by the AMC, the proceeds are paid on the next day to the customers i.e. (T+1 settlement day basis).
There are many channels available for the purchase of Ultra-short bonds. With a plethora of options, it is always advisable to select a reliable partner to assist in investment. RURASH Financials is one of them with credibility and industry expertise.