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The cyclic application of the shape memory effect in NiTi based shape memory alloys is associated with a degradation of the functional properties. In the present work, we show how the functional stability of NiTi based shape memory alloys depends on various microstructural defects like grain boundaries, dislocations and substitutional elements (Fe replacing Ni). As a general trend, it was observed that thermal cycling results in a decrease in phase transformation temperatures. Nano-grained microstructures provide a significantly higher functional stability than coarse grained microstructures due to reduced dislocation activity. Cold work impedes phase transformation processes and provides a slight improvement of the functional stability. Fe additions to NiTi are associated with the occurance of two-step transformations (cooling: B2 ⇒ R ⇒ B19’, heating: B19’ ⇒ R ⇒ B2) which allow partial thermal cycling (B2 ⇔ R and R ⇔ B19’). We show that B2 ⇔ R cycling has a better stability than R ⇔ B19’ cycling due to a better crystallographic compatibility between B2 and R.