UTI Ultra Short Term Fund is an accrual-oriented income fund with a diversified portfolio of debt and money market instruments which aims to generate reasonable income. The fund is well positioned to capture yield movement at the shorter end of the curve by maintaining a portfolio duration of 3 to 6 months along with a high degree of liquidity.
RBI Governor has decided to increase the quantum under the VRRR to ₹ 4 laccrores in a phased manner from August 13, 2021onwards, which dampened the market sentiments. However, various interviews given by the other MPC members clarified that the pace of policy normalization would be gradual and in phased manner. The normalization process which RBI may undertake might include the following steps (i) Reduction in the liquidity ii) Narrowing of the corridor and iii) Hike in repo rate.RBI’s selection of variable rate reverse repo tenors and amounts might provide important cues about pace of rate normalisation. On global front, the U.S. Federal Reserve Chief at the Jackson Hole Symposium did not commit to a timeline for starting the tapering processand indicated that US Fed is going to be very gradual as far as rate hikes are concerned. The expectation is that Fed will start its tapering exercise from November’21 and end by June’22. This provided comfort to bond yields. Going forward, market participants would keenly track thetrajectory of crude oil prices, economic growth, inflation-growth dynamics,the movement of overnight rates, etc
In such a scenario where there is ample liquidity in system, the shorter end of curve (i.e. 1 to 2 years part of the curve) is well supported and provides a good opportunity to invest in UTI Ultra Short Term Fund for short horizon of 3 to 6 months.
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