Best Liquid Mutual Funds

1. Quant Liquid Fund 

Quant Liquid Plan is a Liquid Mutual Fund scheme launched by Quant Mutual Fund. It is currently managed by Mr. Sanjeev Sharma. The investment objective of the scheme is to generate income through a portfolio comprising money market and debt instruments. Its ability to deliver returns consistently is higher than most funds, of its category. The minimum amount required for a SIP investment is ₹1000 & for that of a lumpsum investment is ₹5000.

2. Aditya Birla SL Liquid Fund 

Aditya Birla Sunlife Liquid Fund is a Mutual Fund launched by Aditya Birla Sun Life Mutual Fund. It is currently managed by Mr. Kaustubh Gupta.  This scheme seeks to provide high liquidity and have appropriate returns. It comprises holdings that are of top quality & have ‘AAA’ Credit ratings.  The minimum amount required for a SIP investment is ₹500 & for that of a lumpsum investment is ₹500.

3. Tata Liquid Fund 

Tata Liquid Fund was launched by Tata Mutual Fund.  It is currently managed by Mr. Amit Somani. The scheme seeks to generate reasonable returns with high quality to unitholders. This scheme has a better consistency of returns than most funds of its category. The minimum amount required for a SIP investment is ₹500 & for that of a lumpsum investment is ₹5000.

4. Axis Liquid Fund

Axis Liquid Fund was launched by Axis Mutual Fund. It is currently managed by Mr. Devang Shah. The Fund seeks to invest in high-quality debt & money market securities to earn decent returns with low risk and strong liquidity. The minimum amount required for a SIP investment is ₹500 & for that of a lumpsum investment is ₹500.

5. Nippon India Liquid Fund

Nippon India Liquid Fund was launched by Nippon Mutual Fund. It is currently managed by Mr.Anju Chhajer. The scheme's ability to deliver returns consistently is in-line with most funds of its category. The fund's credit profile is very high indicating it has lent to borrowers whose quality is great. The minimum amount required for a SIP investment is ₹100 & for that of a lumpsum investment is ₹1000.

What are Liquid Funds?

Liquid Funds are Debt Funds that primarily invest in short-term fixed income securities. As the name suggests, ‘Liquid Funds’ are Investments that are ‘Liquid’ in nature & hence can be redeemed easily. These securities include Certificate of Deposits, Treasury Bills, Commercial Papers & other debt instruments. You can invest in these funds without worrying about any lock-in period! Besides that, the redemption request in many top-performing Liquid Mutual Funds can be processed in just 24 Hours on Business Days! 

How does Liquid Funds work?

The major source of revenue for Liquid Funds is the interest they receive on their debt holdings & only a small portion of their income comes from Capital Gains. This is a defining trait of liquid Funds, so let us take a closer look into this:

When interest rates fall, Bond price Rises. When the interest rate rises, the Bond price Falls. Resulting, the bonds with longer maturities tend to fluctuate more.

Since A Liquid Fund invests only in short-term securities, its market value does not significantly change when interest rates fluctuate! Thus, these investments are low-risk investments. Can you relate to this? When you give a loan to someone for a longer period you tend to worry more! In contrast, you might be less concerned about a loan that you provided for a shorter time. Reasons include, longer loans can be converted into bad debts, loss of interest & much more! Before granting a loan, debt funds perform the same thing you would do: evaluate a person's creditworthiness! In Simple language, this is how Debt & Liquid Funds work!

Who can invest in Liquid funds?

A normal savings account historically offers returns of 3% to 4% annually. In comparison, Liquid Funds offer potentially better returns than a Saving Account. Therefore, these funds are best suited for risk-averse investors looking for a liquid investment as well as better returns.

Technically, Individuals (Indian nationals), Non-Resident Indians (NRIs), and HUFs can invest in Liquid Mutual Funds. An investor must also meet KYC compliance standards and be at least 18 years old. A Minor can however invest with a guardian in these funds.

Why to Invest in Liquid Funds?

You can invest in the best liquid Fund, if you’re looking for:

1. Lower Costs: Unlike the majority of Debt Funds, liquid funds do not require active management of Funds. This, in turn, reduces the expense ratio, resulting in higher take-home returns for you.

2. Minimum Risk: These Funds invest in securities that mature within 91 days only. As a result, they carry a reduced level of risk.

3. Flexibility: Liquid Funds, as the name suggests are Liquid Investments that you can redeem anytime, anywhere. However, if you withdraw your money from the fund within 7 days after the purchase date, a modest fee known as an exit load is charged on your investment.

4. Quick Processing: On your redemptions, Liquid Funds process redemptions far quicker than other types of funds do. Additionally, some of these funds may also permit an instant withdrawal for you.
 

What are the tax implications of investing in Liquid Funds?

Yes! When you invest, a Liquid Fund will be taxed similar to that of a Debt Fund. The rules are-

1. Short-Term Capital Gains: If you redeem your investment within three years from the date of purchase, the gains will be taxed as Short-Term Capital Gains. These Gains are added to your total income & taxed as per your respective tax slabs.

2. Long-Term Capital Gains: If you redeem your investments after three years from the date of purchase, the gains will be taxed as Long Term Capital Gains. These Gains are taxed at 20% after the indexation benefit.

However, Are you aware? The dividends provided by a Liquid Funds that you choose will be added to your overall income & taxed as per your Income Tax Slab.

Conclusion

Liquid Mutual Funds can be a go-to option for most people who have big plans in a shorter time. And hence, it can be a great choice for all kinds of investors. As an investor, you must allocate your funds in accordance with your goals and pick the option that best meets your requirements!