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Liquid fund is a category of mutual fund which invests primarily in money market instruments like a certificate of deposits, treasury bills, commercial papers and term deposits. Let’s know about the benefits of liquid funds and how to choose a liquid fund.
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What are liquid funds in India? • Liquid fund is a category of mutual fund which invests primarily in money market instruments like certificate of deposits, treasury bills, commercial papers and term deposits. Let’s know about the benefits of liquid funds and how to choose a liquid fund.
Pointers • Benefits of liquid funds Liquid funds have the lowest interest rate risk among debt funds as they primarily invest in fixed income securities with short maturity. Liquid funds have no entry load and exit loads. Withdrawals from liquid funds are processed within 24 hours on business days. • Returns from liquid funds Liquid funds are among the best investment options for the short term during a high inflation environment. During high inflationary period, the Reserve Bank typically keeps interest rates high and tightens liquidity, helping liquid funds to earn good returns.
How to choose a liquid fund When looking for a liquid fund, the past return should not be the only factor for consideration. Other factors like size of the fund, credit quality of underlying securities and track record of the fund house should also be kept in mind. • Different plans Liquid funds come with different plans like growth plans, daily dividend plan, weekly dividend plans and monthly dividend plans. Retail investors can invest in direct plans as they have a lower expense ratio which helps in getting a higher return.
Taxation Dividends received under liquid plans are not taxed at the hands of resident individual investors. Earnings from savings accounts or banks fixed deposits are clubbed to one's income and are taxed at respective slabs. For more information, call us on our toll free number 1800 266 6002.
