Ultra-short duration funds are money market mutual funds, which invest in money market instruments (commercial papers, certificates of deposits, treasury bills etc) of a certain maturity / duration profile, such that the Macaulay Duration of the fund portfolio is between 3 to 6 months. Longer dated papers gives higher yields compared to shorter dated papers. Hence ultra-short duration funds usually give higher returns compared to liquid funds, but these funds can be slightly more volatile than liquid funds. Like liquid funds, ultra-short duration funds offer high degree of safety, low volatility and high liquidity. Most ultra-short duration funds do not charge any exit load, but you should check the scheme document before investing. If you can remain invested for 3 to 6 months, then ultra-short duration funds would be a better choice compared to liquid funds, because you are likely to superior returns from ultra-short duration funds vis a vis liquid funds.
