Do you keep money in a savings bank account?

Everyone does. And you should.

But a lot of it is not immediately needed.

Your saving bank account gives you a return of around 3.5% p.a. Do you know how much liquid funds give?  Around 7-8% p.a. That much more for similar levels of risk.

This is why people prefer to store money they might need in an emergency in liquid funds.

Let us look into the 10 best liquid funds for 2018 that you can invest in.

Top 5 Liquid Funds

Here are some top liquid funds that you should consider investing in.

1. Reliance Liquid Fund

Currently, Reliance Liquid Fund is one of the most popular liquid funds in the market and aims to generate optimal returns consistent with moderate risk and high liquidity. This is easily one of the best liquid funds in 2018.

Here is the key information of this fund:

Launch Date01 January 2013
NAV (24 May 2018)₹4,282.4676
Plan TypeDirect
Rating by Groww3 Star
AUM (Fund Size)₹21,747
RiskometerVery Low
Minimum SIPNot Supported
Minimum SWP₹500
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark CRISIL Liquid since its launch.
Age of the fund5 years old
Expense Ratio0.15%
Exit LoadNIL
Type Open Ended

Returns per annum over the years from this fund are:

liquid
Fund Name1Y3Y5YCategoryRisk
Reliance Liquid Fund - Direct - Growth7.48%7.35%7.95%Debt
(Liquid)
Low

2. HDFC Liquid Fund 

The primary objective of HDFC Liquid Fund is to enhance income consistent with a high level of liquidity, through a judicious portfolio mix comprising of money market and debt instruments. This too is one of the top performing liquid funds in 2018.

Here is the key information of this fund:

Launch Date31 December 2012
NAV (24 May 2018)₹3,457.8237
Plan TypeDirect
Rating by Groww3 Star
AUM (Fund Size)₹30,233
RiskometerVery High
Minimum SIP₹500
Minimum SWP₹500
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark CRISIL Liquid since its launch.
Age of the fund5 years old
Expense Ratio0.15%
Exit LoadNIL
Type Open Ended

Returns per annum over the years from this fund are:

liquid
Fund Name1Y3Y5YCategoryRisk
HDFC Liquid Fund - Direct - Growth7.29%7.23%7.86%Debt
(Liquid)
Low

3. Axis Liquid Fund

Axis Liquid Fund seeks to generate a reasonable return commensurate with low risk and a high degree of liquidity from a portfolio of money market and high-quality debt securities.

Here is the key information of this fund:

Launch Date01 January 2013
NAV (24 May 2018)₹1,947.0198
Plan TypeDirect
Rating by Groww4 Star
AUM (Fund Size)₹24,161
RiskometerVery Low
Minimum SIPNot Supported
Minimum SWP₹1,000
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark CRISIL Liquid since its launch.
Age of the fund5 years old
Expense Ratio0.11%
Exit LoadNIL
Type Open Ended

Returns per annum over the years from this fund are:

Axis
Fund Name1Y3Y5YCategoryRisk
Axis Liquid Fund - Direct - Growth7.48%NANADebt
(Liquid)
Low

4. Indiabulls Liquid Fund

Currently, Indiabulls Liquid Fund is one of top rated liquid funds in the market and aims to provide a high level of liquidity with returns commensurate with low risk through a portfolio of money market and debt securities with maturity of up to 91 days.

Here is the key information of this fund:

Launch Date01 January 2013
NAV (24 May 2018)₹1,715.633
Plan TypeDirect
Rating by Groww5 Star
AUM (Fund Size)₹4,541
RiskometerVery Low
Minimum SIPNot Supported
Minimum SWP₹500
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark CRISIL Liquid since its launch.
Age of the fund5 years old
Expense Ratio0.07%
Exit LoadNIL
Type Open Ended

Returns per annum over the years from this fund are:

indiabulls
Fund Name1Y3Y5YCategoryRisk
Indiabulls Liquid Fund - Direct - Growth7.37%7.41%8.02%Debt
(Liquid)
Low

This fund is another top-rated mutual fund scheme in liquid category.

5. Principal Cash Management Fund 

Here is the key information of this fund:

Launch Date01 January 2013
NAV (24 May 2018)₹1,710.8879
Plan TypeDirect
Rating by Groww5 Star
AUM (Fund Size)₹1,271
RiskometerVery Low
Minimum SIPNot Supported
Minimum SWP₹500
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark CRISIL Liquid since its launch.
Age of the fund5 years old
Expense Ratio0.15%
Exit LoadNIL
Type Open Ended

Returns per annum over the years from this fund are:

DurationReturns
1 year6.96%
3 years7.46%
5 years8.71%
Since launch8.22%

5 More Best Liquid Funds – Bonus List

1. ICICI Prudential Liquid Fund – Direct – Growth

This fund aims to generate steady and consistent returns from a basket of high-quality liquid debt instruments.

Here is the key information of this fund:

Launch Date01 January 2013
NAV (24 May 2018)₹259.0551
Plan TypeDirect
Rating by Groww3 Star
AUM (Fund Size)₹27,290
RiskometerVery Low
Minimum SIPNot Supported
Minimum SWP₹1,000
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark CRISIL Money Market Index since its launch.
Age of the fund5 years old
Expense Ratio0.15%
Exit LoadNIL
Type Open Ended

Returns per annum over the years from this fund are:

ICICI
Fund Name1Y3Y5YCategoryRisk
ICICI Prudential Liquid Fund - Direct - Growth7.42%7.29%7.91%Debt
(Liquid)
Low

2. L&T Liquid Fund – Direct – Growth

The fund seeks to generate reasonable returns while maintaining safety and providing the investor superior liquidity, investing predominately in a well-diversified and highly liquid portfolio of money market instruments, government securities and corporate debt.

Here is the key information of this fund:

Launch Date31 December 2012
NAV (24 May 2018)₹2,407.753
Plan TypeDirect
Rating by Groww3 Star
AUM (Fund Size)₹13,995
RiskometerVery Low
Minimum SIPNot Supported
Minimum SWP₹500
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark CRISIL Money Market Index since its launch.
Age of the fund5 years old
Expense Ratio0.04%
Exit LoadNIL
Type Open Ended

Returns per annum over the years from this fund are:

DurationReturns
1 year6.92%
3 years7.40%
5 years8.11%
Since launch8.17%

3. Essel Liquid Fund 

Essel Liquid Fund seeks to provide a high level of liquidity with reasonable returns commensurating with low risk through a portfolio of money market and debt securities.

Here is the key information of this fund:

Launch Date01 January 2013
NAV (24 May 2018)₹1,934.29
Plan TypeDirect
Rating by Groww4 Star
AUM (Fund Size)₹471
RiskometerVery Low
Minimum SIPNot Supported
Minimum SWP₹500
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark CRISIL Liquid since its launch.
Age of the fund5 years old
Expense Ratio0.07%
Exit LoadNIL
Type Open Ended

Returns per annum over the years from this fund are:

DurationReturns
1 year6.97%
3 years7.53%
5 years8.26%
Since launch8.32%

4. HSBC Cash Fund

This fund is one of the few liquid funds with least expense ratio and high returns in the category.

Here is the key information of this fund:

Launch Date01 January 2013
NAV (24 May 2018)₹1,748.759
Plan TypeDirect
Rating by Groww4 Star
AUM (Fund Size)₹3,364
RiskometerVery Low
Minimum SIPNot Supported
Minimum SWP₹500
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark CRISIL Liquid since its launch.
Age of the fund5 years old
Expense Ratio0.08%
Exit LoadNIL
Type Open Ended

Returns per annum over the years from this fund are:

DurationReturns
1 year6.90%
3 years7.36%
5 years8.11%
Since launch8.15%

5. Tata Money Market Fund 

This fund targeted at providing high liquidity and reasonable returns with capital preservation by primarily investing in money market instruments issued by high rated corporate sectors.

Here is the key information of this fund:

Launch Date01 January 2013
NAV (24 May 2018)₹3,236.1152
Plan TypeDirect
Rating by Groww4 Star
AUM (Fund Size)₹3,367
RiskometerVery Low
Minimum SIPNot Supported
Minimum SWP₹500
Performance w.r.t its BenchmarkHas consistently outperformed its benchmark CRISIL Money Market Index since its launch.
Age of the fund5 years old
Expense Ratio0.1%
Exit LoadNIL
Type Open Ended

Returns per annum over the years from this fund are:

DurationReturns
1 year6.86%
3 years7.35%
5 years8.08%
Since launch8.22%

What is Liquid Fund?

This is a very common question these days: what is the meaning of liquid funds?

Simply put, liquid funds are debt mutual funds that invest money in short-term market instruments like treasury bills, government securities, etc.

These funds can invest in instruments with a maturity of up to 91 days. Lower maturity periods help a fund manager in meeting the redemption demand from investors.

Characteristics of liquids funds:

  1. Among all debt funds, liquid funds provide most stable returns.
  2. Easily converted in to cash that too within a day time.
  3. Liquid funds are best-suited investors having surplus amount lying idle in savings bank account or Fixed Deposits (FDs) and are intent to get better returns.
  4. They invest in instruments with a maturity period of up to 91 days.
  5. Returns on investing in liquid funds is around 6-8%. Higher then fixed deposits.
  6. Easy liquidity. You get your money within a day.
  7. Tax benefits of liquid funds is that the dividends on these funds are tax-free.
  8. Also unlike other mutual funds, the Net Asset Value (NAV) of liquid funds, do not change as frequently as compared to other mutual funds.
  9. Expense ration for investing in liquid funds are least among all mutual fund schemes.
  10. Liquids funds are best for investors who are risk aversive in nature, do not wish to invest in stock market and expect fixed return on investment

Liquid Funds Taxation

Taxes upon liquid mutual funds are of two types depending upon the period for which they are held. These two types are:

Short-term Capital Gain tax: This is applicable to liquid funds held for a period of 36 months or less i.e. anything less than 3 years. In short-term capital gain tax, tax on funds is calculated as per income tax slab of the individual, i.e. 5%, 20% or 30% on the amount of gain.

Long-term Capital Gain tax: This is applicable to debt mutual funds held for a period of 36 months or more i.e. anything more than 3 years. In long-term capital gain tax, tax on funds is calculated at the rate of 20% with cost indexation on the amount of gain.

Indexation is the adjustment of your purchase price with respect to the effect of inflation in an economy and helps you to pay low taxes on your capital gain.

For example, 

ParticularsFixed DepositsDebt Funds
Invested Sum₹10 lakhs₹ 10lakhs
Return Rate (suppose)10%10%
Lock-in Period5 year5 year
Fund worth at the end of tenure₹15,00,000₹15,00,000
Inflation per year8%8%
Indexed Investment Sum –₹ 14,00,000
Taxed Amount₹5,00,000₹1,00,000
Tax to be paid₹1,50,000₹20,000
Possible returns after tax₹3,50,000₹4,80,000

Thus, even if a bank FD and a liquid fund generate the same rate of return, a liquid fund will generate a higher post-tax return for an investment of greater than 3 years.

Read moreTaxation on Mutual Funds in 2018: A Complete Guide

How Liquid Funds are better than Saving Bank Accounts

Investing in liquid funds are any day a better option on investment as compared to putting money in popular saving bank account schemes.

Owing to its familiarity and institutionalized nature of saving bank accounts, an average Indian taxpayer has more trust in them. However, it seems they are not the most popular short-term investment anymore. This is due to the rising acceptance of mutual funds by investors with different investment goals.

Your hard earned money that lies in a savings bank account fetches you only 4% interest per annum. However, the best liquid funds have returned as high as 6-7% on an average in the past 1 year period, on an annualized basis.

So, on returns alone, liquid funds score over a savings bank account. If you have a raise or a bonus coming your way, invest in liquid funds and party later.

But remember ultimately, you should weigh your decision on your risk appetite, time horizon and investment goals. As market looks positive in last few years and there is several prospects for economic growth in coming years with the announcement of Union Budget 2018, it makes more sense to opt for liquid funds than saving bank accouts.

Read More: 10 Secrets Only Successful Mutual Fund Investors Know

Investing in mutual funds online is very simple and paperless. Simply log in to your Groww account, choose a fund, and invest using net banking – exactly like you would when shopping online.

Groww 30: Top funds in every mutual fund category. 

Happy investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.