HDFC Ultra Short Term Fund

Often, an investor has surplus funds channelized in the future to the designated schemes for long-term financial goals. Parking these funds in the short-term and earning returns is abundantly possible through the open-ended HDFC Ultra Short Term Fund. True to its name, the fund caters to investors who park short-term surpluses before systematically transferring them to other suitable schemes.

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The HDFC Ultra Short Term Fund is a debt scheme with a typical Macaulay Duration of the portfolio between three and six months. It is ideally suited for investors looking for short-term income and capital appreciation while enjoying a high degree of liquidity in a low-interest rate risk investment horizon of two to six months. The fund’s overall risk profile is moderate for the fundamental reason that the fund asset allocation for a diverse portfolio is achieved through a balanced investment approach in debt securities and money market instruments conforming to the Macaulay Duration contours.

Following the fundamental fund objective, income generation and capital appreciation in the short-term is achieved through asset allocation in low to medium risk debt securities and money market instruments up to 100% of total assets, or up to 10% of the total assets in medium to high-risk REIT and InvITs units, still within the defined Macaulay Duration parameters for the fund. The portfolio classification by rating class in percentage points is 14.49 SOV, 72.00 AAA related or equivalent, and 13.51 in Cash. Cash Equivalents and Net Current Assets for an AUM as of 30 April 2021 at  Rs 15278.77 crore.

The top holdings in the portfolio up to nearly 60% of the NAV as of 31 March 2021 are GOI (14.50%), NABARD (9.41%), HDFC (9.21), and RIL (8.01) as the most significant. In terms of sector allocation as a percentage of the NAV as of 31 March 2021, the significant assets are in the Financial Services (5.64), Sovereign (14.50), Oil and Gas (9.46), and Others (13.52).

The HDFC Ultra Short Term Fund offers the following plans and options to the investor to choose from:

HDFC Ultra Short Term Fund Regular:

  • Growth Option
  • IDCW Option

HDFC Ultra Short Term Fund Direct:

  • Growth Option
  • IDCW Option

**The direct option investors do not buy the units from the distributors but the Fund House directly, while in the regular option, it is the opposite.

**The IDCW option is the abbreviated form of Income Distribution and Capital Withdrawal with versions for Daily reinvestment and Weekly or Monthly income payout and reinvestment.

**The default option is Growth if no option is specified.

** IDCW Daily is the default option if no other is chosen.

Fund Facts

 Parameters

Particulars

Fund Name

 HDFC Ultra Short Term Fund (Regular and Direct Plan Options)

Fund House

HDFC Asset Management Company, commonly known as  HDFC Mutual Fund

Launch Date

25 September 2018

Scheme Category

Ultra Short Duration Fund

Scheme Type

Open-ended debt scheme

AUM

Rs 15278.77 cr as of 30 April 2021

Benchmark

CRISIL – Ultra Short-Term Debt Index

Application Investment

Minimum: Rs.5000

Additional: Any amount in multiples of Rs 1000 after that.

Lock-In

Nil

Entry Load

Zero

Exit Load

Nil depending on the switch in the same plan or other

Risk Grade

Regular: Below average

Return Grade

Regular: Above average

Risk Level

Moderate

Benefits of HDFC Ultra Short Term Fund

Deployment of surplus funds in the HDFC Ultra Short Term Fund comes with its batch of benefits. It primarily provides the cushion required before the funds are systematically channelled schemes with better yield prospects within the broad parameters of the investor’s risk profile. In this light, the significant benefits from investments in the HDFC Ultra Short Term Fund are described below:

Liquidity

The primary aim of the investors in the HDFC Ultra Short Term Fund is to tap the short-term return potential within a six-month horizon. The open-ended nature of the scheme ensures that the fund units are readily transacted in a well-defined time frame. In this context, it is worth mentioning that the Fund House, in compliance with the SEBI Regulations, assures payment of redemption proceeds within ten business days from the requested date. In the event of any delay, the house is liable to pay a penalty of 15% per annum to compensate for it.

Transparency

Utmost transparency is the key to earn investor confidence to help in analytical fund deployment to achieve the full fund potential. Accordingly, the HDFC AMC computes the fund’s NAV daily, which is also the mainstay of unit transactions. The daily NAV information is disseminated in the following ways:

  • It is uploaded in the public domain in the Mutual Fund’s official portal.
  • It is displayed in the Association of Mutual Funds in India (AMFI) portal.

Taxation

Earning from the HDFC Ultra Short Term Fund comes under the purview of the extant laws governed by the Income Tax Act, 1961. The tax implication depends on the nature and duration of the earning. The two ways it is primarily taxed in India are:

Capital Gains

The provisions do not come into play if the funds stay invested. In the case of unit redemption, the following rules apply:

  • If the units are sold three years from the purchase date, a flat 20% rate is applied to the capital gains after adjusting inflation indexation.
  • The earning is added to the investor’s gross income for computing tax liability for units sold in less than three years at the applicable income tax slab rate.

Dividend

The dividend earned in a year is added to the investor’s gross income for tax calculation at the applicable slab rate.

Fund Summary

HDFC Ultra Short Term Fund Regular Plan-Growth Option

  • Risk Level: Moderate
  • NAV: Rs 11.9107 as of 21 May 2021
  • Expense Ratio: 0.64 as of 30 April 2021
  • Fund Started On: 25 September 2018

HDFC Ultra Short Term Fund Direct Plan-Growth Option

  • Risk Level: Moderate
  • NAV: Rs 12.01 as of 20 May 2021
  • Expense Ratio: 0.34 as of 30 April 2021
  • Fund Started On: 25 September 2018

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Fund Returns Summary

HDFC Ultra Short Term Fund Regular Plan-Growth Option (as of 31 March 2021)

Period

Return %

Benchmark Returns %

1 year

5.72

5.41

Since Inception

6.97

6.94

 

HDFC Ultra Short Term Fund Direct Plan-Growth Option (as of 31 March 2021)

Period

Return %

Benchmark Returns %

1 year

6.05

5.41

Since Inception

7.39

6.94

 

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Cumulative Pros and Cons Table

Pros

Cons

The Expense Ratio is lower at 0.34 for the Direct Plan

 

Being an open-ended scheme, it offers higher liquidity.

 

It is ideally suited for parking surplus funds temporarily before deploying them fruitfully.

 

It offers investment flexibility in lump sum and SIP.

 

The exit load is nil.

The fund is relatively new to provide a longer track record for performance analysis.  

 

It is ideally suited for institutional investors with bulk surpluses rather than retail investors.  

 

The returns are only marginally higher than the bank deposits.

Fund House Details

HDFC brand is a well-known name in the Indian financial sector. They offer diverse financial services in Banking, Housing, Education, Insurance, and Mutual Funds.  The HDFC Group sponsored HDFC Asset Management Company, also referred to as the Fund House, administers the vibrant Mutual Fund business through its headquarters in Mumbai.  Since its launch in 1999, it has emerged as one of the market leaders in the Mutual Fund business with the largest share in equity-oriented fund schemes.

The HDFC AMC is a joint venture enterprise with the primary stakeholders being HDFC Limited and Standard Life Investments Limited. It serves a vast clientele with 9.1 million live accounts belonging to the institutional and retail investors hosting an asset value of Rs.4.1 trillion. The company went public in 2018 through the IPO route with a substantial stake handed to the public.

As of today, the primary stakeholders of the HDFC AMC are:

  1. HDFC Limited: It is the major shareholder with a 52.8% stake in the Fund House, with a pan India presence in 200 locations hosting 224 branch offices.
  2. Standard Life Investments Limited: It is owned by Standard Life Aberdeen Group of UK and one of the largest asset managers in Europe. Its global operations are spread across continents in America, Asia, Australia, and the Middle East. It holds a 26.9% stake in the fund house.
  3. Public: After the fund house went public in August 2018, the stake held by the public is 26.1%.

Who Should Invest in HDFC Ultra Short Term Fund?

Although the HDFC Ultra Short Term Fund offers short-term returns marginally higher than the Bank Deposits, it is well patronized by the institutional investors flush with surplus funds. However, it does not preclude retail investors from parking their funds in the scheme. Accordingly, the indicative lists of investors who can earn short-term returns are:

  • Resident Individuals either singly or jointly not exceeding three.
  • Minors in their sole name operated by their natural or legal guardian.
  • Non-Resident Indians and similar status individuals with repatriation and non-repatriation option.
  • Karta on behalf of the HUF.
  • Partnership firms, including Limited Liability partnerships.
  • Banks and Financial Institutions.
  • Corporate Bodies, Companies, Public Sector Enterprises.
  • Associations, Societies, Religious and Family Trusts.
  • Other Mutual Fund Schemes.

Conclusion

The HDFC Ultra Short Term Fund is ideally suited for investors who wish to park their surplus funds in the three to the six-month investment horizon. The fund aims to generate income and capital appreciation by investing in debt securities and money market instruments complying with the Macaulay Duration between three to six months. Although the projected returns are marginally higher than the bank deposits, it serves the investor by parking the surplus funds in the scheme before systematically diverting them to more lucrative schemes to potentially higher yields. Being an open-ended scheme, it is eminently attractive for its ready liquidity. The HDFC AMC delivers the final word as the most profitable Fund House in the Mutual Fund firmament offering the scheme with its unique reliability stamp.  

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“The investment risk in the investment portfolio is borne by the policyholder.”

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C apply.

“Tax benefit is subject to changes in tax laws. Standard T&C apply.”

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