Liquid funds as the name suggests are those funds in which the investments in a particular financial instrument can be easily withdrawn to get immediate cash.

These funds invest in debt securities (eg debt mutual funds), highly liquid money market instruments such as treasury bills, commercial papers, certificate of deposit, government securities that hold very less risk.

Many a time, we have excess cash/money at our disposal and we know that we would require the funds only after a few weeks or months. In such a situation, we usually tend to park our excess funds in a savings bank account.

Liquid funds help investors earn a higher rate of interest as compared to a savings bank account with a considerably low risk.

Additionally, these are lower risk bearing and less volatile among other mutual funds, for the reason that they invest in instruments bearing a high credit rating.

To sum up, in the current high-interest rate scenario, if an investor would like to earn some interest on their funds while he parks them in a bank, then liquid funds can do a better job than a savings account.

TOP LIQUID FUNDS FOR 2018

In this article, we shall cover 5 best Liquid funds in terms of their performance. Investors can invest in these liquid funds for optimum utilization of their idle funds.

Axis Liquid Fund

Facts:

AUM ₹16,056 Cr
NAV ₹1909.02
Expense Ratio 0.07%
Minimum SIP ₹1000
Return 1Y 6.71%
Return 3Y 7.46%
Return 5Y 8.13%

The investment objective of the scheme aims to provide a high level of liquidity with reasonable returns commensurating with low risk through a portfolio of money market and debt securities.

With a fund size of over ₹ 15,000 crores, this almost 10-year-old fund has been one of the most promising liquid funds.

Being a liquid fund investing in safe debt securities, this fund has a very low risk. Moreover, the fund has been given a 5-star rating by Groww.

The expense ratio of this fund is 0.07%, which is one of the lowest compared to similar funds in this category. Additionally, the exit load for this fund is 0.

Assets under Management (AUM) of this fund is approximately ₹16,000 crores. The returns tend to decline once the fund size becomes excessively huge.

The funds’ assets are invested in instruments with high debt ratings. Some of them being, A1+, AA+, AAA, among others.

Company Sector
HDFC Bank Ltd Financial Services
Indiabulls Housing Finance Ltd. (358D) Financial Services
ICICI Bank Ltd. Financial Services
Treasury Bill (91D) Sovereign
Reliance Industries Ltd. Energy

Among the top priority sectors for this fund are financial services, followed by metals, services, and energy among others.

Kotak Floater Fund- Short Term

Facts:

AUM ₹10,806 Cr
NAV ₹2827.53
Expense Ratio 0.15%
Minimum SIP ₹1000
Return 1Y 6.68%
Return 3Y 7.50%
Return 5Y 8.17%

The investment objective of the scheme is to reduce the interest rate risk associated with investments in fixed rate instruments by investing predominantly in floating rate securities, money market instruments and using appropriate derivatives.

With a fund size of over ₹ 10,000 crores, this 15-year-old fund has been one of the best performing liquid funds.

As this fund belongs to the liquid fund category and invests in safe debt securities, this fund has a very low risk.

Moreover, the fund has been given a 5-star rating by Groww.

The expense ratio of this fund is 0.15%, which is at par with similar funds in this category. Additionally, the exit load for this fund is 0.

The funds’ assets are invested in instruments with high debt ratings. Highest proportion is of A1+ rated funds followed by AA, AAA, among others.

Company Sector
CBLO (CCIL) Current Assets
Housing Development Finance Corp. Financial Services
PNB Housing Finance Ltd. (358D) Financial Services
Piramal Enterprises Ltd. Pharma
Hindalco Industries Ltd. Metals
Reliance Industries Ltd. (62D) Energy

The top priority sectors for this fund is financial services which has nearly 50% allocation. This sector is followed by metals, pharma, and energy among others.

Indiabulls Liquid Fund

Facts:

AUM ₹4541 Cr
NAV ₹1680.09
Expense Ratio 0.2%
Minimum SIP Not supported
Return 1Y 6.70%
Return 3Y 7.56%
Return 5Y 8.19%

The investment objective of the scheme is to provide a high level of liquidity with returns commensurate with low risk through a portfolio of money market and debt securities with a maturity of up to 91days.

With a fund size of only ₹ 4,000 crores, this almost 6-year-old fund has been one of the most promising and best-performing liquid fund.

Being a liquid fund which invests in safe debt securities, this fund has a very low risk. Moreover, the fund has been given a 5-star rating by Groww.

The expense ratio of this fund is 0.2%, which is on the higher side when compared to similar funds in this category. However, the exit load for this fund is 0.

The funds’ assets are invested in instruments with high debt ratings. Highest being, A1+, followed by AAA, Sovereign among others.

Company Sector
IDFC Bank Ltd Financial Services
Bajaj Finance Ltd. (358D) Financial Services
ICICI Bank Ltd. Financial Services
Treasury Bill (91D) Sovereign
Edelweiss Securities Ltd. Energy

Among the top priority sectors for this fund are financial services which account for 70% of the allocation. This is followed by Sovereign.

Aditya Birla Sun Life Cash Plus

 Facts:

AUM ₹30,717 Cr
NAV ₹276.53
Expense Ratio 0.1%
Minimum SIP ₹1000
Return 1Y 6.67%
Return 3Y 7.47%
Return 5Y 8.18%

The investment objective of the scheme is to provide reasonable returns at a high level of safety and liquidity.

With one of the largest fund size of over ₹ 30,000 crores, this almost 13-year-old fund has been one of the better liquid funds.

As this fund belongs to the liquid fund category and invests in safe debt securities, this fund has a very low risk.

This fund has been given a 3-star rating by Groww.

Assets under Management (AUM) of this fund is approximately ₹16,000 crores. The returns tend to decline once the fund size becomes excessively huge.

The expense ratio of this fund is 0.1%, which is at par when compared to similar funds in this category. Moreover, the exit load for this fund is 0.

The funds’ assets are invested in instruments with high debt ratings. Highest being, A1+, followed by AAA, AA, and Sovereign among others.

Company Sector
Axis Bank Ltd Financial Services
Steel Authority of India Ltd. Metals
PNB Housing Finance Ltd. Financial Services
Treasury Bill (182D) Sovereign
Vedanta Ltd. Metals

Among the top priority sectors for this fund are financial services which account for over 65% of the allocation. This sector is followed by metals and Sovereign respectively.

Tata Liquid Fund

Facts:

AUM ₹3638 Cr
NAV ₹3173.05
Expense Ratio 0.15%
Minimum SIP ₹500
Return 1Y 6.65%
Return 3Y 7.40%
Return 5Y 8.08%

The investment objective of the scheme is targeted at providing high liquidity and reasonable returns with capital preservation by primarily investing in money market instruments issued by high rated corporate sectors.

With a modest fund size of over ₹3,000 crore, this almost 15-year-old fund has been one of the better performing liquid funds.

As this fund belongs to the liquid fund category and invests in safe debt securities, this fund has a very low risk.

This fund has been given a 4-star rating by Groww.

The expense ratio of this fund is 0.15%, which is at par when compared to similar funds in this category. Moreover, the exit load for this fund is 0.

The funds’ assets are invested in instruments with high debt ratings. A1+ accounts for about 70% of the allocation and the rest accounts for Sovereign.

Company Sector
CBLO (CCIL) Current Assets
Yes Bank Ltd Financial Services
PNB Housing Finance Ltd. Financial Services
Treasury Bill (182D) Sovereign
Nabha Power Ltd. Energy

Among the top priority sectors for this fund are financial services and sovereign which accounts for over 75% of the allocation. Energy, metals among others constitute the remaining.

Conclusion

Liquid funds help in better utilization of an investor’s idle funds. It does so by providing decent returns from funds that would have yielded no returns. It does so at a very low-risk level.

But that is not all that is does. Keeping some funds parked into a liquid fund can be a great source of opportunity for investors.

How is this a great opportunity?

During times when the market is volatile, for example, the recent correction taking place in February and March 2018; provide investors an excellent wealth generating opportunity.

They can invest in liquid funds and earn decent returns. And as soon as they find an investment opportunity, in the wake of a market correction or other external/ internal factors, they can quickly liquidate these investments.

The quick realization of funds, allows them to take advantage of the opportunity and invest in quality stocks at a considerably lower price.

The best part is that they do not have to keep their funds idle waiting for the opportune moment to buy the stocks of their choice at the desired price.

In the short-term, investors achieve the dual purpose of generating returns on funds which would otherwise have remained idle (waiting for the right opportunity, or correction).

Happy Investing!

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