Reviewed by Sep 30, 2020| Updated on
Ultra-short term funds are focussed on high returns and invest in risky securities. They are unlike most money market mutual funds which invest only in high quality, short-term investments issued by the government and government corporations.
Money market funds are subject to stringent regulations with respect to diversification and maturity standards.
The ultra-short bond fund helps in protecting investors income against interest rate risk compared to long term bonds. Since the funds are of short duration, the funds are less affected by an increase in the interest rate.
Certain ultra-short bond funds invest in risk-free government securities, and others invest in bonds with lower credit ratings or derivative securities.
Investors should be aware of the kind of securities an ultra-short bond fund invests in. The returns on the fund can be hit if a credit downgrade or default of portfolio securities take place.