Can I invest in ultra-short, low-duration funds for the short term?

Money market and debt funds can be profitable in the short term. Even then, there are sub-categories of debt funds that be gainful for the time horizon of 1 year or less. Depending upon how you define the short term, you should focus on the debt side of mutual funds. Debt funds work as an ideal investment for the short-to-medium term. Debt funds mainly invest in a mix of debt or fixed income securities such as treasury bills, government securities, corporate bonds, money market instruments, and other debt securities of different time horizons.

Generally, debt securities have a fixed maturity date & pay a fixed rate of interest. With debt funds, you get tax efficiency, liquidity, and higher returns. These funds also offer indexation benefits if the units are held for over a year. Moreover, the dividends earned are tax-free. If you want to park your money for a few weeks or months, liquid funds are the best bet. If you have to invest for six months to a year, ultra-short-term or money market funds work better.

As far as investing is concerned, make it a point to invest in funds owned by reputable companies to lower your risk further. You can also track the performance of the fund along with other criteria like the fund’s size, the fund manager handling the fund, the investment objective of the fund, the risk profile it carries, its past performance, etc. Having said that, it is also important to note that an investor's funds and portfolio allocation must be executed based on the risk appetite and financial goals.