Liquid Funds are mutual funds that invest primarily in money market instruments. These instruments are treasury bills, bank deposits, corporate papers, etc., having maturities below 91 days.
These funds are by far the most popular type of debt mutual funds. These funds are highly liquid, and can be withdrawn overnight without any exit load. Such funds invest primarily in highly liquid securities, and fluctuate very little. these funds are generally used by investors to park excess amounts of money for a short period of time. They provide a decent return on investment, about 6-7% per annum. Though this may seem less than other debt funds, liquid funds actually have a lot of benefits such as liquidity, etc.
Most of the investments of these funds carry low risk. These funds are extremely liquid in nature and can be withdrawn overnight without an exit load.
Features of Liquid Funds:
- Annualized Returns:
These funds provide a better rate of interest than a savings bank account does. Unlike Bank FDs they do not carry any penalties for early redemptions. You can earn an average return of 6.5% to 7% on the liquid funds.
If you have growth plan, short term capital gains on the units sold within 36 months are taxed at slab rates. The units that are redeemed after 36 months will attract the long-term capital gains at 20% with indexation.
In case of the dividend plan, the dividends distributed attracts the dividend distribution tax of 28.84% which is deducted by the mutual fund house before distribution to investors.
- Liquidity: These funds are considered among the most liquid investments and carry no exit load, and can be withdrawn overnight. High liquidity is among the main reasons why liquid funds are used for emergency corpus.
When Should You Consider Investing in these funds?
Investing in these funds proves to be highly beneficial in the short-run. Since these funds are highly liquid and carry very low risk, one can park excess money in these funds.
Sudden influxes of cash, say from a bonus or the sale of a house property, can be invested under liquid plans to maximise the money’s productivity.
How are Liquid Funds Different?
Liquid funds invest into highly liquid money market instruments that can be redeemed very quickly whereas the other debt funds invest in various fixed income securities or the money market instruments.
Since, money is invested for a maximum period of 90 days, you can earn more stable returns as the risk on interest rate fluctuations is very less.
On the other hand, in case of other debt funds, the money is invested for longer time period and the returns may vary depending on the market conditions.
The Bottom Line:
Investing in liquid funds units are very beneficial when you have got excess money in your hand. These funds are effective way to store emergency fund, because such funds carry very low risk and provide better returns.
Finally, start investing now with WealthApp, a top robo advisor based in Bangalore, India.
WealthApp is a user-friendly platform that provides you with investment advisory services to select and invest in mutual funds in India. While foraying into this world may seem daunting but at WealthApp, our financial consultants can help you with financial planning to make the right decisions about money – which sets you on path to achieve your financial aspirations. Should you require, our financial consultants also guide you on mutual funds and their benefits.
We also realize that every individual is different, and they have various doubts and concerns. This is why we’ve gone through a great effort to create personalized mutual fund portfolio plans across not just equity funds and debt-funds, but also one-time and SIP (systematic investment plan) investment modes, tailored to your specific needs. Further, if you are thinking about tax saving investments, contact WealthApp now.
SBI Bluechip Fund | Top Mutual Funds | Liquid Funds | ELSS Funds | Tax Saving Mutual Funds | Financial Planning | Best Performing Mutual Funds | Best ELSS Funds | Tax Saving Investments | ELSS Mutual Funds | Debt Mutual Funds | Large Cap Mutual Funds | Best Large Cap Mutual Funds | Financial Consultant | DSP Opportunities Funds | Financial Advisory Services | Tax Saving Funds | Robo Advisor | Best Large Cap Funds | Robo Advisors Bangalore