Introducing Liquid Mutual Funds in an Easy way

Last Updated on November 20, 2020 by FinTuts
Reading Time: Around 4 minutes

In this article, FinTuts will share its views or ideas about Liquid Mutual Funds, so that you can take a self-decision on your investment or wealth creation journey and can be financially literate and atmanirbhar.

Liquid Mutual Funds are Debt Mutual Funds that largely invest in debt securities with short term maturities, lend to companies for a period of up to 91 days. These debt securities comprise money market instruments such as Treasury Bills(T-bills), Commercial Paper(CP), Certificates of Deposits(CD).

The fundamental advantage or most defining feature of investing in liquid mutual funds is that the high liquidity they provide. Liquidity is known as the degree of how quickly assets are often bought/sold and converted to cash.
These funds are considered the safest funds among all the mutual fund categories, due to their very low lending duration.

The process of NAV calculation for liquid mutual funds is basically unique. It is calculated for 365 days. Regarding other debt funds, the calculation is based only on business days.
Returns from Liquid Mutual Funds are taxed based on the holding period of invested capital.

Benefits|Features|Advantages of Liquid Mutual Funds

  • Do not come with any lock-in period.
  • No entry and exit loads are applicable.
  • Suitable for putting money aside for emergencies.
  • Near zero risk of loss or rock bottom risk if investors invest for a minimum of one month.
  • Have given up good returns(up to 50-100%) than the savings bank account.

How to Decide|Choose|Pick Liquid Mutual Funds

  • Investors can look for the historical performance of a liquid fund and its benchmark & category returns.
  • Investors should search for the asset allocation of liquid funds which contains investment in highly rated debt securities(such as Government securities and AAA-rated PSU bonds) by CRISIL.
  • Investors should check out the typical maturity period of the investment portfolio of liquid funds. 3 months or less are often considered a good fund to take a position in.
  • Investors can look for a low expense ratio fund as well.

Top|Best Liquid Mutual Funds

  • Mirae Asset Cash Management Fund – Growth
  • Tata Liquid Fund -Regular Plan – Growth
  • UTI Liquid Cash Plan – Regular Plan – Growth
  • Axis Liquid Fund – Growth
  • Aditya Birla Sun Life Liquid Fund – Regular Plan – Growth
  • Invesco India Liquid Fund – Growth
  • Kotak Liquid – Regular Plan – Growth

The Bottom Line || Verdict

  • Investors who have substantial idle cash and are trying to find short-term investment havens can invest them in a liquid mutual fund rather than parking their surplus funds in a savings bank account.
  • Investors should definitely consider their financial goals, risk appetite, expected returns, and investment horizon while considering investing in any of the Liquid Mutual Funds.

We hope that this article might have surely helped you to understand in general about Liquid Mutual Funds.
If you liked reading about this article, then please do visit our other articles regarding Mutual Fund or Passive Income related reviews.
Besides, should you have any concerns, please feel free to comment below or do reach out to us. FinTuts will be happy to help. #HappyInvesting.

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