Liquid Mutual Funds - An Ideal Choice for Smart Investors

We all prefer to keep surplus portion of our earnings, mostly in savings account at low rate of interest to stay prepared for unforeseen events or for events like household expenditures, school fee of kids etc.

Often we keep our fund lying idle in back accounts for the events to be held in near future, say a month or two and do not invest it just because fixed deposits and other securities do not allow immediate usage. Do you know that you can have easy access to your money along with earning high rate of interest and liquidity of your fund simultaneously?

Where should you invest your surplus money that can cater dual benefit of high interest and liquidity together?

Liquid Mutual Funds is the answer to the above question and you can enjoy utmost liquidity and interest higher than offered in savings account.

To Learn about Liquid Mutual Funds click here

Liquid Funds and their redemption period

Don’t you all try to be a smart investor and most of you invest additional money in fixed deposits that locks your money for specific period, preventing the use of money for the particular term. Liquid fund is utmost lucrative investment choice in case you want liquidity primarily in the investment.

Liquid funds are one of the kinds of mutual funds/ Debt Mutual Funds which entail less than 24 hours redemption period. You can enjoy similar amount of mobility which is offered by hard cash. The lock-in-period of liquid funds can extend maximum to 3 days and its encashment takes place in 24 hours.

While there are also some sorts of liquid funds that have lock-in-period of a week or a month. The sole and popular feature of it is lower maturity time. As per your need and with little vigilance, you can invest in liquid fund and enjoy desired liquidity.

As per Value Research data, the category of liquid funds are offered return or interest of 6.84 % in past few years which is noticeably higher than interest of 3.5-6% in saving accounts.

Tax levied on liquid funds

It is important for you to be versed with the provision of tax on liquid fund to be a smart investor. The capital gains from the investment made in liquid funds are taxable. Short term capital gain tax is imposed on these funds on being disposed off prior to completion of 3 years.

The income tax slab under which the individual lies is the deciding factor of rate of income tax. Long term capital gain tax is imposed, if the funds are put up for sale after the span of 3 years and is imposed at 20% with the gain of indexation.

Characteristics of Liquid Funds

It doesn’t lay any entry and exit load on investor.

It involves a small annual fee usually between the slots of 0.30% to 0.70%.

The minimum investment for liquid funds varies with different schemes, so we advise you to undergo schemes thoroughly and select as per your requirement.

Some important advantages of liquid funds you should know

Tax relief – Liquid funds enjoy remarkable tax benefits.

No lock-in Span – It offers prompt right to use your funds through the provision of redemption and therefore have no Lock-in Period

No restriction on withdrawal – You can withdraw your fund within 24 hours.

Lowest Interest Rate Risk – Short maturity period facilitates low interest rate risk.

Fairly Good Returns – Liquid funds offers return of about 8% per annum.

Risk You May Face with Liquid Funds

Investment made in liquid funds is invested in securities which depend upon market price. The Net Asset Value (NAV) of Mutual Funds varies with the variation in the market price of securities.

In comparison to other funds, the NAV of liquid funds do not vary so much. The amount of interest earned by liquid funds during the period is estimated for the number of days for the period security is held by the holder. The price of security remains fixed and the movement of NAV of liquid is consistent. But that doesn’t indicate that they are completely risk free.

Investment of fund can be made in scrips with the maturity span between 60-91 days. On making the investment in scrips, they will be subjected to market price on the basis of their credit rating. There will be reduction in the credit rating of scrip along with market price in the instance of default by the company on the principal amount or in payment of interest and eventually there will be decline in the NAV fund also.

Liquid Fund Plans Available

You i.e. Investors have an option of choosing amongst diverse plans offered by companies which are weekly dividend plan, daily dividend plan, growth plan and monthly dividend plan. It is to be noted that selection of plan must be made as per the need to have best yield.

Why liquid funds are best for you?

Liquidity and return are the two concerns of an investor which are emphasized in this article. As far as liquidity is concerned, liquid funds are best as it authorises investor to get the encashment of his invested principal in just a day. Out of 90% of value of your portfolio or RS 50, 000, whichever is less can be withdrawn.

So what are you waiting for? Start Investing in liquid Funds with Swaraj Wealth.