LIC MF Ultra Short Term Fund: Get returns from your idle funds in current interest rate environment

Interest rate scenario

Global bond yields have been rising since the start of calendar year 2026. In September, the US Federal Reserve hiked interest rates by 25 bps (source: US Federal Reserve, 16^th September 2026). The European Central Bank (source: ECB, 10^th September 2026) and Bank of Japan also hiked interest rates by 25 bps (source: CNBC, 17th September 2026). The 10 year US Treasury Bond yields rose by 77 bps on a YTD basis to 4.92% in October (source: CNBC, 31st October 2026). UK and Japanese 10 year Government bond yields are also at multi decade high. On its part, the Reserve Bank of India hiked the repo rate by 25 bps to 5.5% (source: RBI, 7^th October 2026). In its monetary policy statement, RBIs near term outlook on inflation points towards points towards continued pressures from supply side on account of the deficient monsoon, ongoing El Niño conditions and high energy and other commodity prices. The RBI project’s CPI inflation to be 5.27% for FY 2026-27 with Q2 at 4.9%; Q3 at 6.0%; and Q4 at 5.7% (source: RBI press release, 7^th October 2026).

Yield scenario

In the last 15 – 18 months, the 10 year G-Sec Yield in India has risen by almost 100 bps (source: Investing.com, as on 30^th September 2026). In the last 6 months, since the outbreak of hostilities between US/Israel and Iran, the 10 year bond yield has risen nearly 73 bps. With outlook on geo-political risks, interest rates and inflation uncertain, a shorter duration accrual based fixed income strategy may be more suitable for investors. In this article, we will review LIC Ultra Short Term Fund.

Source: Investing.com, as on 31^st October 2026

The 180 day T-Bill has gone up by 111 bps on a YTD basis (as of 31^st October 2026). Investors can get relatively higher yields by investing in accrual based debt funds. Accrual based debt funds hold the papers till maturity. Hence investors can get the yield to maturity of the T-Bill even if the yields fluctuate. Ultra short term funds invest in debt and money market instruments such that the Macaulay Duration of the fund is between 3 to 6 months. Since the duration of the funds is very short, the interest rate sensitivity of the funds are low i.e. low interest rate risk.

Source: Investing.com, as on 31^st October 2026

LIC MF Ultra Short Term Fund

The chart below shows the growth of Rs 10,000 investment in LIC Ultra Short Term Fund over the last year versus the overnight rate index. You can see that the fund has given relatively stable returns despite yield creeps.

Source: Advisorkhoj Research, as on 26^th October 2026

LIC MF Ultra Short Term Fund - Performance over different investment tenures

The chart below shows the 1, 3 and 5 year rolling returns of LIC MF Ultra Short Duration for different investment tenures over the last 5 years. You can see that the fund has given fairly stable returns across different interest rate / yield scenarios

Source: Advisorkhoj Research, as on 26^th October 2026

LIC MF Ultra Short Term Fund - High credit quality

The credit quality of the fund is very high. Around 98% of the underlying portfolio is AAA, Sovereign and cash or cash equivalent.

Source: Advisorkhoj Research, LIC MF Factsheet, as on 30^th September 2026

LIC MF Ultra Short Term Fund - IDCW Options

LIC MF has daily, weekly and monthly IDCW options. The fund has been regularly making IDCW payments to investors for last several years. IDCW receipts can be tax free provided your overall income including IDCW payments does not exceed Rs 12 lakhs in a financial year under the New Tax Regime.

Who can invest in LIC MF Ultra Short Term Fund?

• Investors looking for reasonable returns with investment in high credit quality credits


• Investors looking for short term investment


• Investors seeking lower interest rate risk


• Suitable investment option for investors looking for a low risk fund for STP to a LIC MF equity fund. LIC MF Ultra Short Term Fund does not charge any exit load on redemptions or STP or switches.


• Investors with an investment horizon of 3 to 6 months or more

Investors should consult with financial advisors or mutual fund distributors if LIC MF Ultra Short Fund is suitable for their investment needs.