Ultra short duration bond funds as denied by SEBI are open ended ultra-short-term debt schemes which invest in instruments with Macaulay duration of 3-6 months. Macaulay duration is the weighted average term to maturity of the cash flows from a bond. The objective of this category is to generate returns over the short-term by following a low-risk strategy.

Manoj Nagpal of Outlook Asia Capital lays out some warning signals that investors must watch out for. If the portfolio of an ultra short duration bond fund gets skewed towards lower rated securities, it is generally a big red flag, he says. If returns are too good to be true, there is probably something amiss, he added.

First Published:May 11, 2020 12:16 PM IST