Best Liquid Mutual Funds in India

Liquid Funds vs FD:

In terms of saving money or putting in an emergency mutual funds, maximum Indians normally stick to low-risk avenues like their savings account and fixed deposits. However, with banks reducing interest rates, So investing in liquid funds assumes extra importance in case you want to maximize your returns. 
The best materialize liquid mutual funds have given returns around 7 - 8 percent variety for a 1 - 3 year duration, which, is superior to returns from savings A/C or FD's after factoring tax and inflation. So from this we know that liquid mutual funds are a better option than FD.

What are Liquid Mutual Funds:

Liquid Mutual Funds are falling under debt category that invest in treasury bills for short-term like certificate of deposit or term deposits, commercial papers and other short-term money market tool with maturity of up to ninety one days or you can say these funds invest in Non Convertible Debentures(NCD)/ bonds and money market tools with maturity no longer than 91 days. You can put money into liquid funds via SIP's or as a lump sum. The base amount that can put in liquid funds is depending on the scheme and require a redemption time of scarcely 24 hours.


Best Liquid Mutual Funds in India

Maximum liquid mutual funds provide 2 - 3 options for investing – growth, month-to-month/ weekly dividend choice, which can be in addition categorized as payout (cash on your account) or re-funding choice (additional units credited). You can choose an option relying for your cash flow and other necessities. At the same time as dividend is tax-free for your fingers, the fund has to pay a dividend distribution tax (DDT) before that.



Reason to Invest in Liquid Mutual Funds:

  • Liquid Mutual funds typically do not have an entry/ exit load, and no lock-in period. The expense ratio is lowest, compared to equity/ debt funds.
  • They are also less unstable and the maturity of their investments inside ninety one days makes them less vulnerable to interest rate fluctuations.
  • As the name suggests, those funds are tremendously liquid – you can get your money in 1 business day. In fact, some mutual fund schemes now also assist you to withdraw your cash in a count of mins, up to a distinctive limit. Confirm the redemption duration, eligible amount and cut-off time with the fund house before you invest.
  • They assist save you impulsive purchases – which you’re possibly to do if the money is lying idle on your financial savings account

Taxation on Liquid Mutual Funds:

With bank FD's/ deposits, you are required to pay tax on the earned interest when filing your tax returns every year, whereas tax is levied on mutual fund profits only on actual redemption, depending on whether profits are short-term/ long-term.

Inside the case of debt funds(Liquid mutual funds), short-term period capital gains manner redemption within 3 years, and long-term period capital gains if redemption after three years. Short-term capital profits are delivered to your earnings and taxed as according to your tax slab. Long-time period capital gains are taxed at 20% with indexation benefits – which facilitates to regulate your purchase price, taking inflation into account.

Making your cash work for you:


If you have irregular profits as a professional or freelancer, or all of sudden get a windfall by way of an inheritance, sale of belongings or an advantage, or simply have un-utilized money, you need to make your money work for you in preference to simply letting it stay idle to your financial savings account.
One of the better approaches to do this is via an STP - Systematic Transfer Plan. First discover a very good equity/balanced fund that you wish to invest in. Commonly, you would transfer cash from your bank account to this fund, both lump sum or as an SIP.
But, in case you make investments the bulk of the amount first in a liquid mutual fund, you may installation an STP - Systematic Transfer Plan to switch money periodically to the equity/ balanced fund. This would grow the overall return on your investment because of higher yield out of your liquid mutual fund as compared in your financial savings account, besides the return at the equity/balanced fund.


Tenure and Fund house if you choose STP:

The tenure of the STP (Systematic Transfer Plan) may be decided primarily based for your economic desires or consolation degree or the amount within the liquid mutual fund, so from 6 months/ 1 year to even three years. Maintain an eye on the markets earlier than over-committing your funds though. Do take into account that both the liquid mutual fund and equity/balanced fund have to belong to the same fund house if you wish to use a systematic transfer plan. 
The most essential factor of direction, is to test the fund fact sheet, overall performance, risk profile and above all, the expense ratio – as a way to deliver your funding that brought improve with higher returns.

I keep few things in mind during selection of best Liquid mutual funds:

  • Funds selected on the basis of past performance
  • Check Crisil rating of selected funds
  • Assets under management(AUM)
  • Expense Ratio and Exit load
  • Detailed investment portfolio of the funds

Best Liquid mutual funds:
  • HDFC Liquid Mutual Fund
  • ABSL Liquid Mutual Fund (Aditya Birla Sun Life)
  • Franklin India Liquid Mutual Fund
  • Quantum Liquid Mutual Fund
  • Sundaram Money Liquid Mutual Fund

Summary of These Liquid Mutual Funds:
  • No exit and entry load
  • Very low annual expenses
  • Variable investment amount depending upon the scheme
  • Tax benefits
  • Smooth liquidation which rightfully glorifies the name
  • An average return of 7-8 percent


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