The primary advantage of mutual funds is their wide range of options. They meet practically all of the investor’s needs. But this diversity is also a problem, as it causes more confusion. Take, for example, overnight funds, liquid funds, and ultra-short-duration funds. They are like the roles of Ranbir Kapoor in Saawariya, Wake up Sid, and YJHD, different yet the same. All three are low-risk, low-return investment options meant for short-term investment.

So, if one wants to park funds for the short term, which one to select? Each of the three has a small distinction that makes it appropriate for a certain situation. Let us discuss –

When to choose which fund?

The choice between the three depends on the time horizon and liquidity requirement of the investor. 
Overnight funds are for those investors who want to take no risk at all and want to park their money for a couple of days.
If you are looking for an option to park lumpsum money for investment through a systematic transfer plan (STP) then Liquid funds are a suitable place to park your cash for a short term of 1-3 months.
Ultra short-term funds suit clients who have an investment horizon of 3-6 months and are open to taking a slight risk. This is for investors who prefer liquidity so they cannot put it in FD and want to earn slightly more interest than what their Savings A/c offers.

When there is a rising interest rate environment, investors should stick to very short-duration funds as the portfolio value of very short-duration funds falls comparatively at a lesser pace than long-duration funds. How that happens is a story for another blog. For now, I hope you are comfortable with which type of ultra-short-term debt fund is beneficial in which scenario. Until next time!