Top 10 Liquid Mutual Funds

Liquid Funds invest in debt securities with very short maturities of up to 91 days (like lending to banks, short term govt. bonds and very short-term corporate paper). They provide full flexibility of anytime liquidity and earn returns in the form of interest for the holding period. They are highly secure due to kind of entities (Govt., Banks, Top Corporates (Small amount)). A number of corporates use liquid funds for their treasury management.

These invest in short term (90 days) bonds and other similar instruments. One can use them as an emergency fund. These are meant for parking your money and keep it handy so that you can redeem it as and when required. Returns are taxed as per your income tax slab if sold before three years.

Purpose: Invest in these funds if you want to park your money as an emergency fund, and redeem as per need.

Can you save tax with Liquid Mutual fund?

If held for less than 3 years, capital gains would be added to investor’s income and taxed at his marginal rate of tax but compared to FD which is taxed annually these funds are taxed on exit.There are many Liquid Funds available in India that one can invest in but their performance is very similar. The most important feature we need to focus on while evaluating liquid funds is the lowest risk possible. In terms of returns, they provide very similar returns as FD and you can withdraw anytime without any penalty.

What are the parameters used for the best liquid fund?

Size of fund: 5k Cr+. Low Risk based on standard deviation of quarterly returns <0.2. Average returns: annual, quarterly (annualized) to be 8%+ net of expense ratio. Duration of portfolio to be < 1year. Excluded Institutional Plans. Exit load: Nil and Credit quality to be AA or plus.

Why opt for Liquid Funds?

Higher returns: Your hard earned money that lies in a savings bank account fetches you 4% interest per annum. However, the best liquid funds have returned as high as 8-9% on an average in the past 1-year period, daily, on an annualized basis. 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. Even as compared to FD, the returns are higher in liquid funds. Look at the graph below for understanding how much the difference is costing you. Less Risks: Liquid funds are invested in government bonds and high credited companies. The risks are the lowest with you can get when you’re investing in the market. They are the least risky and least volatile among mutual funds Liquid funds are like parking lots, you park your money while you are out doing something important, and when you come back to it, it appears to be washed and waxed. Whenever you want, you get your money back, and the profits are striking. Easier tax implications: Your bank interest gets taxed at income tax rates (30.9% for the highest tax bracket; including surcharge). You need to collect TDS certificates, re-calculate taxes and submit it while filing returns. With Liquid funds, the interest income falls in Capital Gain income. In case it’s earned in less than 3 years, you need to pay tax, just like income. In case it’s after 3 years, i.e. its long term capital gain, the tax would be on interest earned after indexation. The overall tax rates come down to 8-9% instead of ~30% in case of FD for long term capital gain. So, you can constantly increase your money without getting as much tax cuts as in a fixed deposit. No lock-in period: There is no lock-in period when you invest in liquid funds. You can withdraw at any time without getting charged a penny. All you have to do is notify for the request. The withdrawals from these funds are processed within 24 hours (business days). The cut- off time for the withdrawals is set at 2 pm which basically means if a request is made within 2 pm on a business day then the funds will get credited to your bank account within the next business day by 10 am. The fixed deposits on another hand, charge you if you withdraw before the maturity. No entry and exit loads: There are certain funds that can be purchased without the sales charge and be withdrawn with no charges, cutting at your profits. Entry load is charged at the time an investor purchases the units of a scheme. Exit load is charged at the time of redeeming (or transferring an investment between schemes). Liquid funds are free from both.

Why are Liquid funds better than FDs?

Offer superior liquidity compared to bank FDs. Bank FDs would penalize you for premature withdrawal. Returns are generally better than FD returns with slightly higher risk profile.

What is the return in liquid funds?

Liquid funds have given returns in the range of 6-8% per annum. The returns given by liquid funds do not change much and are very stable. It is this stability that allows people to store money in liquid funds without worrying about market conditions or volatility.

How to invest in Liquid mutual funds on Groww?

One of the best ways to hedge against the small-cap volatility is to adopt a phased approach, also known as Systematic Investment Plan (SIP) approach. We are sure that you must be aware of SIP and its benefits. Buying in small quantity but buying regularly provides you with faster growth. On Groww.in, all transactions to and from AMC is done via BSE. When you decide to invest in a large cap mutual fund of your choice, you choose that mutual fund on the website and click ‘invest’. Following that, you are redirected to the BSE page where you make the payment. BSE then directs your money to the AMC managing your mutual fund. To be assured at your end, you can visit the individual AMC website after the payment. You would be able to see all your purchased units against your folio number.