Understanding an ultra short-term bond fund

Understanding an ultra short-term bond fund
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First Published: Sun, Feb 28 2010. 09 26 PM IST
Updated: Sun, Feb 28 2010. 09 26 PM IST
0-15 seconds
Who am I?
I am an ultra short-term bond fund. You may remember me better by my old name, liquid-plus. I go by the new name after the Securities and Exchange Board of India issued a circular in January 2009, recommending a change in name.
15-30 seconds
What sets me apart?
I bear resemblance to a liquid fund, though I am not as “liquid”. Unlike a liquid fund that can’t hold debt papers with a maturity of more than 90 days, I can hold some scrips of longer maturity—up to one year. This helps me earn slightly higher returns, but also makes me a tad more risky.
30-45 seconds
Should you buy me?
Since I am not a liquid fund, I am more tax-efficient. Dividends from liquid funds are taxed at 28.325%; my dividends bear a 14.163% tax. Investors usually like me for parking their short-term cash, some investors prefer to park a lump sum with me and then opt for a systematic transfer plan to an equity fund.
45-60 seconds
What’s my downside?
I am more risky than a liquid fund but you may be misled to believe otherwise. Since a portion of my portfolio is marked to market, I get hit when the debt market gets highly illiquid, like in October 2008, when the government stepped in to help us out.
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First Published: Sun, Feb 28 2010. 09 26 PM IST