Liquid funds

Liquid Funds

Liquid funds are one of the mutual fund schemes that invest their corpus in financial instruments such as Treasury Bills, Bank Fixed Deposits, Commercial Paper, Debt Securities with up to 91 days maturities. The Net Asset Value (NAV) of the funds are calculated for 365 days, unlike other mutual funds where Net Asset Value is calculated for business days only. As such, liquid funds have no restrictions regarding ‘lock-in-period’. The withdrawals are processed within 24 hours on business days. Liquid mutual funds have a low rate of interest as compared to other class of debt funds. Reason being, they primarily invest in fixed income securities with short-term maturity. Also, liquid funds have no entry or exit load.

 

Top 5 Liquid Funds 2019 in India

Tata Liquid Fund (G)- Direct Plan

Returns 1Y:  7.53%

IDBI Liquid Fund (G)- Direct Plan

Return 1Y: 7.7%

UTI Liquid Cash Plan (G)- Direct Plan

Return 1Y: 7.6%

SBI Liquid Fund (G)- Direct Plan

 

Return 1Y: 7.51%

Canara Robeco Liquid Fund (G)

 

Return 1Y: 7.5%

  • Past Performance Is No Guarantee of Future Results

Features:

  • Liquid mutual funds feature a low annual fee somewhere between 0.30%-0.70% range.
  • The minimum investment for the best liquid funds will vary according to the different schemes.
  • There is no entry or exit load.

Benefits:

  • No Lock-in-Period: You can get quick access to your cash by redemption because liquid funds have no lock-in period.
  • Low Risk of Interest Rate: Given that liquid mutual funds invest in fixed income securities which gives short maturity time-period, thus, they have one of the lowest interest rate risks as compared to other (debt) funds.
  • Quick Withdrawals: The withdrawals of liquid funds take place in a short time span – 24 hours.
  • Good Returns (Comparatively): An average return of 8% per annum is being offered by liquid funds.
  • Tax-benefits: Valuable tax benefits are offered by liquid funds.

How Liquid is Better Than Saving Account and FD/RD

  • Saving Account (4%)
  • Fixed Deposit (7.3)
  • Liquid Fund (7.8)

Liquidity: The word liquidity refers to the ease of money taken out from an investment. Your investment in liquid mutual funds is more liquid as compared to other funds; more flexibility in the investment duration as compared to RD/FD. In FD the investment is locked for the period of 1-5 years generally. RD/FD is less liquid in terms of redemption (referred to as pre-mature withdrawals); you end up paying some extra charges in the form of fees or penalty. And when its about savings account, the money seems to be under the fixed rate of interest (around 3%-4%) with ‘not so quick’ increase, thus, not growing your money.

Tax: The interest income from FD bank is added to the total income of the assessee or investor and later, taxed according to the tax-slab as applicable.

Returns: Historically, liquid funds have been found to generate returns in the (approximately) range of 7%-7.8%. It is higher than the mere 6-7.3% returns obtained on FD/RD.

However, the returns on liquid funds are not guaranteed, in most of the cases, they have delivered positive returns upon redemption.

How Liquid Funds Work

 

Liquid funds are debt mutual funds that invest money in short -term market instrument such as government securities, treasury bills and call money. Like the way you make deposits at the bank, liquid funds invest your money in short-term debt instruments that mature in less than 90 days. Liquid funds are most stable and less volatile types of investments. But they are not entirely risk free. So, if you have a short time period to make an investment, it is better to park your money in liquid funds. It provides higher returns than a savings bank account. Apart from that, these funds don’t have exit loads.

How To Invest in Liquid Funds with Gulaq

Investing in Gulaq is as easy as ABC. A modern platform wherein you can start with as low as 100 INR without any hassle. All you need to do is sign-up; choose your liquid fund; invest in the amount you are thinking of, and bravo its good to go. Also, you can take a view of your portfolio just to keep the track.

How To Evaluate Liquid funds?

 

Liquid funds are mainly debt funds which invest in certificates of deposits, treasury bills and commercial papers. To evaluate a liquid funds, there are certain factor to take into the consideration.

 

  • Fund Returns:

 

It’s one of the critical things to look after before deciding the fund. You may look for the funds which have delivered consistent returns over a long-time horizon. Select those funds which have outperformed their benchmark over a consistent period.

 

  • Fund History:

 

It’s quite important criterion to decide any liquid fund. Before selecting any Fund house, make sure to check the history of the fund and it’s performances. A fund house which has provided consistent returns over a period is good for investment.

 

  • Expense ratio:

 

The expense ratio is quite an important factor to select any best liquid funds. It indicates the amount of your investment is being deducted to manage the expenses of the fund. A lower expense ratio is always good for the investor. So, make sure to choose a fund which has a lower expense ratio and superior performance.

 

  • Financial ratios:

 

Financial ratio is one of the important parameters to analyse the performance of the fund from different ways. You can use standard deviation, Sharpe ratio, alpha and beta to examine the risk -adjusted returns. Any liquid fund with having higher standard deviation and beta is quite riskier than a fund with lower beta and standard deviation. Apart from that look for the liquid funds,

which have a higher Sharpe ratio which means it gives higher returns on every additional unit of risk taken.

Why Salary Day is Crucial for Liquid Fund Investment?

Salary Day is the day of celebration, but EMIs, Rent, and other payments step forward and psst! The account gets debited. That’s okay, once all payments have been made, time to think about the remaining money. How about investing in liquid funds rather than making them stay in your savings account? The answer is reasonable, the return of liquid funds is better as compared to your FDs/RDs or savings account. And for the unannounced crisis, withdrawal from liquid funds are easier as compared to FDs that comes with the lock-in-period. Precisely, the choice over here is crystal clear.

Frequently Asked Questions

Can liquid funds give negative returns?

Not Generally, but there are exceptional cases where liquid funds have given negative returns.

Can I invest liquid funds through SIP?

Yes, you can invest in liquid funds through SIP.

Can NRI invest in liquid Funds?

Yes, NRI can invest in liquid funds.

Where a liquid fund invests money?

Liquid funds are type of debt mutual funds that invest in money market securities, such as government securities, treasury bills and call money.

Which liquid fund is best?

Here is a list of top liquid fund, depending upon the performance over last 5 years.

* Aditya Birla Sun life liquid growth plan.

* ICICI prudential Liquid Fund growth.

* Reliance Liquid Fund Growth

* Axis liquid Institutional Growth.

* Kotak Liquid Fund growth

What is an ultra-liquid fund?

Ultra liquid fund is slighter longer-term debt instrument with maturity of more than 91 days and less than 1.5 years.

Is liquid fund interest taxable?

Yes, Capital gains on liquid fund are taxable.

Are Liquid fund safe?

Yes, Liquid fund is safe. It is one of the best alternatives to the saving accounts.

What is a Liquid Fund?

Liquid funds are a type of mutual funds that invest in securities with a residual maturity of up to 91 days.

Which is better liquid fund or FD?

A liquid fund is not comparable to FD. You must compare it with saving bank. If you ask me whether a debt fund is better than FD, it certainly is- both in terms of returns and tax efficiency.

Do you want better returns than Savings Account & FD/RD ?

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Attention Investor
Investments in Mutual fund & Securities Market are subject to market risks. Please read the scheme information and other related documents carefully before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements before choosing a fund or designing a portfolio that suits your needs. Terms and conditions of the website are applicable.

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