Wealth Creation is becoming more and more popular with current generation with options of different Asset classes available. From Equity linked funds , real estate investments & recently commodities like gold & silver providing staggering returns with uncertainty around Tariff’s. But along with investments , we do hold good amount of cash specially emergency back up fund. With inflation increasing year on year, purchasing power of cash reduces as well as Banks providing marginal return on savings account. Liquid Mutual Funds came into picture with an alternate option of keeping cash invested and get decent handsome returns on same. Let’s understand in detail about Liquid Funds.
Liquid Mutual funds primarily invest in money market instruments such as call money, government securities (g-secs), commercial paper, treasury bills etc. which have a maturity period of up to 91 days. Liquid funds are ideal for those investors who want to park their cash for a short period of time and need access to the cash at short notice.
The primary aim of liquid mutual funds is to provide a high degree of liquidity and ensure capital protection. Liquid funds invest in high-credit quality debt instruments such as certificate of deposits, commercial papers, treasury bills, etc. The fund manager ensures that the average maturity of securities that comprise the portfolio is up to 3 months. Major Players invest most of the money in high credit rated bonds or sources , specially A+ rated which provides security over returns as well
We will deep dive into top 10 Mutual Fund houses and understand their funds basis their AUMs they managed , 1Y returns & fund life which will give us lot of clarity around them.
| Liquid Mutual Fund | AUM (Cr.) | 1Y return% | Fund Age |
|---|---|---|---|
|
HDFC Mutual Fund |
71000 |
6.98% |
24 Years |
|
SBI Liquid Fund |
68000 |
6.91% |
21 Years |
|
ICICI Prudential Fund |
56000 |
6.98% |
19 Years |
|
Aditya Birla Sunlife Fund |
54000 |
7% |
21 Years |
|
Kotak Liquid Fund |
42000 |
7.3% |
21 Years |
|
Nippon Liquid Fund |
41000 |
6.98% |
21 Years |
|
Axis Liquid Fund |
36000 |
7.05% |
15 Years |
|
UTI Liquid Fund |
29000 |
7.01% |
21 Years |
|
Tata Liquid Fund |
25000 |
7.01% |
20 Years |
|
DSP Liquid Fund |
20000 |
7.03% |
19 Years |
Data is approximate , can refer to site for more details.
From 1st April 2023, the taxation of debt mutual funds has changed significantly due to amendments in Budget 2023. Any gains arising from the transfer, redemption, or maturity of units of debt mutual funds purchased on or after this date will be treated as short-term capital gains, regardless of the holding period. These gains will be taxed at the investor’s applicable slab rates, and the benefit of indexation will no longer be available, as such funds are no longer classified as long-term capital assets.Â
Who Should Invest in Liquid Funds?
Liquid funds are considered the best option for investors looking for stable investment options, with good returns. The following investors can consider investing in Liquid funds:
1. Short-Term Investors
Individuals or entities willing to make short-duration investments with lower risks may find liquid funds appealing. One of the major reasons is the modest and low-risk returns, mostly up in 91 days.
2. Cash Reserve Holders
Those holding surplus cash which they don’t require immediately can consider liquid funds. These funds provide an avenue for storing excess funds, offering slightly higher returns compared to the traditional way of investment.
3. Investors Transitioning to Equity Funds
Liquid funds can help those investors who look to transition from conservative to more growth-oriented investments, including equity funds. The liquidity and stability of liquid funds make it an attractive option for investors who want to move towards higher risk gradually.
4. Emergency Fund Builders
Many investors use liquid funds to have their emergency funds due to their low-risk nature, competitive returns, and high liquidity. These funds also offer quick access to funds when you have any unforeseen incident and need for money.