1. High Liquidity

Liquid funds are easy to withdraw. In fact, that's why they're called "liquid" funds meaning and funds that have high liquidity.

This simply means that your investment will be credited to your bank account in 24-48 hours.

2. Low Investment Cost

To start with, liquids funds generally do not charge a fee for premature withdrawal or exit load after 7 days. Furthermore, the best liquid funds in India are known to have a low expense ratio between the range of 0.20 to 1%.

An expense ratio is nothing but the fee charged by the management team of a liquid fund to manage the securities in its portfolio.

All of these factors imply that the investment cost of a liquid fund is relatively lower than other mutual funds like equity funds.

3. Low Risk

Liquid funds have a maturity period of 91 days that is the time it takes for the liquid fund to get its principal back from the securities that it has invested in.

This relatively short maturity period is known to reduce the risk of investing in the best liquid mutual funds.

4. Better Than FDs

Liquid funds have been historically known to generate returns of 4-8% along with high liquidity. This is, as you can tell, better than the returns that you'll get on an average bank FD. Furthermore, the exit load in liquid funds is not as harsh as it is on FDs.

5. Low Minimum Investment Amount

You can invest in the best liquid mutual funds in India for as low as ₹100. The low minimum investment amount can be useful for amateur investors who want to understand how investing in mutual funds in India works.

1. Investment Goals

You must understand your investment goals to know if liquid funds can add value in the short or long run. For example, if you’re an aggressive investor looking for high returns, liquid funds are not the right option. 

2. Portfolio Allocation

Your investment goals areand directly intertwined with your portfolio. Liquid funds may be suitable based on the financial health and gaps in your portfolio. 

There are two ways to know if liquid funds can add value to your portfolio:

1. Speak to a Cube Wealth Coach
2. Get your mutual fund portfolio analysed for free!
   

3. Risk tolerance

Liquid funds are widely considered to be safer than other mutual funds like equity funds and arbitrage funds. However, liquid funds still carry interest rate risk. 

Cube Wealth’s risk quiz can help you do this - it’s a simple quiz with a handful of important questions. After completing the risk quiz, you will:

• Understand if you should invest in liquid funds
• Get curated liquid fund recommendations
  

Download the Cube Wealth app to take the risk quiz and invest in the best liquid funds of 2022

4. Expense Ratio

In general, debt funds are known to have a low expense ratio. This holds true for liquid funds too since they are debt funds. A low expense ratio generally means that you’ll have to pay less when you redeem your investment.  

However, certain liquid funds charge an exit load for redemptions before 7 days. 

5. Future Potential

A liquid fund has the potential to generate better returns than your bank account or even an FD. But you must look to the future because past performance won’t matter much when you think of long term wealth creation. 

Wealth First helps you invest in liquid funds for the future based on a complex analysis of 12+ qualitative and quantitative factors. Download the Cube Wealth app to know more.  

1. Fund manager

A good fund manager with a stellar track record can help the liquid fund generate better returns (subject to market conditions). Thus, knowing the fund manager’s investing habits can help you evaluate a liquid fund. 

2. Returns

Liquid funds have been known to generate stable returns due to their low portfolio maturity period. However, seeking quality advice from experts like Wealth First can help you understand if the fund will continue to generate consistent returns in the future. 

3. Expense Ratio

A bigger expense ratio will eat into your profits. Thus, you must evaluate the expense ratio before investing in a liquid fund. 

4. Fund Size

Bigger may not necessarily be better when it comes to fund size but it’s a useful metric to look at when evaluating any mutual fund including liquid funds. 

5. Capital Gains Tax

Investors will have to pay a Short Term Capital Gains tax if liquid funds are held for less than 3 years. The tax rate is according to the investor’s tax slab. 

Furthermore, investors will have to pay a Long Term Capital Gains tax if liquid funds are held for more than 3 years. The tax rate is 20% with indexation benefits. 

Download the Cube Wealth app or Speak to a wealth coach to invest in the best liquid funds for 2022.

1. Are liquid funds better than FD?

Ans. Yes, liquid funds are better than FDs because they offer: 

• Better returns
• Higher liquidity
• No lock-in period
• Easy to buy and sell
• Safer than other funds
  

Download the Cube Wealth app to invest in the best liquid funds.

2. Which is the safest liquid fund?

Ans. In general, liquid funds are considered to be the safest mutual funds. You can invest in liquid funds in a safe way using a reliable and transparent app like Cube Wealth. 

3. Are liquid funds good?

Ans. Liquid funds are safer than other mutual funds and better than FDs. Thus, liquid funds may be a good option based on your investment objectives.

4. Are liquid funds tax free?

Ans. Liquid funds are not tax free and are taxed just like Debt funds:

• Short Term Capital Gains
  

You’ll be liable to pay taxes on gains made on liquid funds sold before 3 years. The gains are added to your annual income and taxed according to your I-T slab. 

• Long Term Capital Gains
  

You’ll have to pay taxes on gains made on liquid funds sold after 3 years. The LTCG tax rate is 20% with indexation benefits. 

• Dividend Distribution Tax
  

Liquid fund dividends are taxed at 29.12%. 

5. When should you invest in Liquid funds?

Ans. Liquid funds can be used when you need to park surplus money for a short period of time since the returns are better than a bank savings account.

But that’s not all, investors prefer liquid funds as a temporary pitstop in an STP. The STP amount is parked in the liquid fund and is transferred to the equity fund on the due date. 

Liquid funds can also be used for the long term since historical data suggests that these funds can generate 5-7% returns over 5+ years. Download the Cube Wealth app to invest in the best liquid funds.