Looking to invest your short-term funds in liquid funds. This post lists Best liquid funds to invest. We start with introduction to liquid funds and then capture the list of top liquid funds for 2017.
When did you last check the average account balance in your savings account and the interest you earn on these savings. Well if you are lucky you might earn about 6% but in most cases, you will earn anything between 4-5% on the funds parked in your savings account . Is there a better way to manage the funds lying in your savings account and also get liquidity as good as the savings account?
Well yes, there is and the right financial product for you is Liquid Funds.
What are Liquid funds
Liquid funds are a class of funds which invest exclusively in short-term securities with a maturity of fewer than 91 days. Thes are also called money market funds as most of the securities they invest in are from the money market. Liquid funds typically invest in securities like treasury bills, certificate of deposits etc
As they invest in short-term securities so fund managers can respond to immediate redemption requirements hence they are perfect liquid investments. In fact you can get redemption the same day.
See this video to understand more about liquid funds
https://www.youtube.com/watch?v=L_gM2DJJhJ4
To read more about liquid funds read my post on All about liquid funds
Key Features of Liquid Funds
- Liquid funds invest in money market securities
- You can get same day withdrawal from liquid funds so they are ideal to park funds which you might require at short notice like emergency funds, they are also a great cash management solution for corporates
- They are reasonably risk-free as they invest in short-term securities less than 91 days making them relatively immune from interest rate risks.
- They can give anything between 2-4 % higher returns than your saving account
- There are no entry or exit loads hence you can enter or exit any time
- They attract flat 28.325 % tax for the 30 % bracket hence you save little bit on taxes also
List of top best Liquid funds to invest in 2017
- Birla Sun Floating rate Fund-Short term
- Birla Sun Life Cash plus
- Axis Liquid Fund
- ICICI prudential Liquid Fund
- HDFC Liquid Fund
- L&T Liquid fund
- India bulls liquid fund
- JM financial high liquidity fund
- HDFC Liquid Fund
- Tata Liquidity Fund
Below are the returns of the best liquid fund in last few years
Details of best liquid funds
ICICI prudential Liquid Fund
ICICI prudential liquid fund is an open ended scheme which was launched on 17th November 2005.The majority of their investments at any time are in money market securities. As on Oct 31st, it has about 28820 crores of assets under management.Minimum first investment in the plan is Rs 500 and minimum additional investment is Rs 100
JM financial high liquidity fund
Stated objective of JM financial high liquidity fund is to provide regular income in the form of dividend and capital gains with a secondary objective of capital appreciation. The scheme was launched on 31st Dec 1997. As on Oct 31st, 2016 it has about 4954 crores of assets under management . The minimum initial investment requirement is Rs 5000 while minimum additional investment is Rs 1000.
Baroda Pioneer Liquid Fund
This is an open-ended scheme designed to provide regular income with high degree of liquidity . The scheme was launched on 5th of Feb 2009. As on 3st October 2016, it has about 6190 crores of assets under management and the expense ratio of 0.32%.Minimum permissible investment is Rs 5000 and minimum additional investment is Rs 1000.
Axis Liquid Fund
Axis liquid fund is an open ended debt-liquid scheme which was launched on 9th October 2009. This scheme is suitable for investors who are looking for regular income.The majority of their investments at any time are in money market securities. As on Oct 31st, its expense ratio is o.10% and has about 12716 crores of assets under management.Minimum first investment in the plan is Rs 500 and minimum additional investment is Rs 100.
Indiabulls liquid fund
India liquid fund is an open ended scheme which was launched on 25th October 2011. As on Oct 31st2016, it has about 28820 crores of assets under management. The expense ratio of the fund as on Oct 31st, 2016 is 0.21%.Minimum first investment in the plan is Rs 500 and minimum additional investment is Rs 500
Tata Liquidity Fund
Tata liquid fund is an open ended high liquidity scheme which was launched 24th August 1998. This scheme is suitable for investors who are looking for regular income. The fund envisages to invest in following 3 types of securities.
- Debt and debt related securities (listed)
- Debt and debt relate securities( unlisted)
- Money market securities.
The majority of their investments at any time are in money market securities. As on Oct 31st, its expense ratio is o.17% and has about 3051 crores of assets under management.Minimum first investment in the plan is Rs 5000 and minimum additional investment is Rs 1000.
HDFC Liquid Fund
HDFC liquid fund is an open ended scheme with an objective to enhance income and provide high liquidity to its investors at any point in time they invest about 50-90 % in money market instruments . The scheme was launched on Oct17,2000. As on 31st Oct 2016, it has about Rs 28,649 crores of assets under management. Expense ratio as on 31st October 2016 is o.82% which is on the higher side. Minimum investment allowed is Rs 5000 and minimum additional investment is Rs1000.
L&T Liquid Fund
Stated objective of L&T liquid funds is to provide good returns with superior liquidity for its investors.The scheme invests in money market instruments, government securities, and corporate debt. The scheme was launched on 3rd of October 2006. As on 31st October, it has about Rs 7264 crores of assets under management. The expense ratio of the scheme as on 31st October 2016 is 0.14%. Minimum investment in the scheme is Rs 10000 and minimum additional investment is Rs 1000.
Baroda Pioneer Liquid Fund
This is an open-ended scheme designed to provide regular income with high degree of liquidity . The scheme was launched on 5th of Feb 2009. As on 3st October 2016, it has about 6190 crores of assets under management and the expense ratio of 0.32%.Minimum permissible investment is Rs 5000 and minimum additional investment is Rs 1000.
How did I arrive at the top liquid funds
Here are the criteria for selection of top liquid funds
- Minimum of Rs 1000 crore of AUM
- Consistent high return performance in last 3 years
- Mutual fund house pedigree is also given some credit
- Expense ratio of the funds
Different Liquid Fund schemes and which one to chose when
Liquid funds are available in following options
- Regular growth plan, where NAV of your fund increases
This is a great way to park your money from the savings account or any large sum of funds you received and don’t know where to park them. This will ensure your funds grow at a brisk pace and you can take out your money at any time.
- Monthly Dividend plans
Monthly dividend plans help you get a regular monthly income on your investment. This is typically a very good investment during your retirement where you can park funds and keep getting a regular income from the same
- Yearly Dividend plans–
If you are looking at annual returns on your investments than the yearly dividend plans from liquid funds is a great option.
- Daily dividend plan/Weekly Dividend plan
Daily dividend & weekly dividend plans get you a regular daily or weekly income respectively.
Liquid Funds versus Savings account
As has been explained above liquid funds are a great alternative to savings account they provide superior returns and are highly liquid which ensures you can withdraw the money quite quickly. Below chart compares the rate of interest on savings account versus the return on investments on
| SNO | Bank Name | Savings Deposit rate |
|---|---|---|
| 1 | SBI | 4% |
| 2 | HDFC Bank | 4% |
| 3 | ICICI Bank | 4% |
| 4 | Kotak Bank | 6% |
| 5 | Yes Bank | 6% |
| SNO | Liquid Fund Scheme | Annual Return |
|---|---|---|
| 1 | India Bulls Liquid Fund | 7.96% |
| 2 | ICICI Pru Liquid Fund | 7.81% |
| 3 | Axis Liquid Fund | 7.76% |
| 4 | L&T Liquid Fund | 7.77% |
| 5 | JM liquid Fund | 7.85% |
Apart from higher interest rate liuid finds also help you with tax deferral resulting in a higher return on your investment.What this means is if you chose liquid fund growth scheme you can defer your taxes and not paying any taxes at sources resulting in higher return on your money.
Liquid Funds versus Fixed deposits
While it is quite clear liquid funds are a great alternative to the money lying in your savings account, but how do they fare against another popular investment option which is Fixed deposits. Here are the reasons why liquid funds can be a great alternative to fixed deposits too.
- Comparable interest rates: Fixed deposits interest rates are very similar or lower than top liquid fund returns. Some special cases like senior citizens deposits or fixed deposits available in some of the co-operative banks will be an exception. In general Liquid, funds will match or outperform fixed deposits
- Liquid funds provide higher liquidity than fixed deposits and at a lower cost. There are no exit loads on liquid funds but the pre-mature withdrawal of fixed deposits can result in penalties in most of the banks.
- Liquid funds also help you defer taxes. In the case of ficed deposits, a tax is always deducted at source but if you have chosen to invest in growth option in liquid funds you can defer taxes and let your money grow faster. Let’s say if you invest 10 lac in a fixed deposit with an annual return of 8% for 3 years then your interest income will be let’s say Rs 80000, In the case of fixed deposit, you would need to pay taxes every year at the rate of your tax bracket (assuming 30 %). Which means your total corpus at the end of the year will be 10 lacs+80K-24K –> 10.56 lacs in case of the Liquid fund if you earn 8 % your corpus will be 10.8 lacs and you can keep growing this money. At the end of 3 years in the case of liquid funds, your money will be subject to capital gains tax which will be about 20%. So you will not only defer taxes pay lower taxes also. In case you chose to invest for less than one year you will be subject to taxes as per your tax bracket so not much difference there
Tax Treatment of Liquid Funds
Liquid funds are subject to capital gain taxes which means if you sell your funds before 3 years you will have to pay short term capital gain tax which is basically in line with your tax slab. Your gains will be added to your regular income and you will pay taxes as per your slab.
If you stay invested for more than 3 years then you will attract long term capital gain tax which is taxed at a rate of 20 % with indexation benefits for your investment.
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