Liquid Mutual Funds In India: All You Need To Know

Most mutual fund investors understand the benefits of diversification and a long term strategy. But it’s important to have money at hand for unexpected short term events or emergencies.

This is where liquid funds prove to be beneficial. Instead of letting surplus money rot in a savings bank a/c, investors prefer to park their surplus in liquid funds. 

Liquid funds are known to give returns of up to 7-8%, which is higher than a savings bank a/c known to have an interest rate of 2.5-4%.      

How A Liquid Fund Works

A liquid fund is a type of debt mutual fund that can offer better returns than a bank savings account or fixed deposit. 

The fund manager invests your money in a variety of fixed income instruments and debt securities like:

• Corporate Bonds
• Treasury Bills
• Commercial Paper
• Debentures
• Government securities
• Certificates of deposit
  

Important Things To Know About Liquid Mutual Funds

The NAV for a liquid fund is calculated for 365 days. Other mutual fund NAVs are calculated for business days alone.  

You get the previous day’s NAV of the liquid fund if your allotment request is received before 2 PM.

You can withdraw your money from a liquid fund within 24 hours. Some liquid funds also have the ‘Insta redemption’ feature. 

The Cube Wealth app gives you access to the “Cube ATM” feature. You can use Cube ATM to move money from your liquid fund investments to your bank account in minutes. 

Here are snapshots of Cube ATM in action

Benefits of Liquid Mutual Funds

Benefit #1: Low maturity period

Investors prefer liquid funds for the short term because these funds have an average maturity period of 91 days. 

Benefit #2: Lower fluctuations

The short maturity period ensures that the fund is less likely to be affected by interest rate fluctuations. 

Benefit #3: Better stability

More often than not, liquid fund returns are very stable since the short term securities don’t fluctuate much as compared to long term bonds. 

Let’s look at the benefits of liquid funds at a glance:

• No entry load
• No exit load
• High liquidity
• Lowest interest rate risk
• Better returns than bank a/c
• Higher returns than bank FD 
• No lock-in period
• Tax-free dividends
  

Liquid funds are also considered to be the safest mutual fund investments available to an Indian investor.  

Is A Liquid Mutual Fund Taxable?

You won’t be liable to pay taxes on the dividends that you receive from your liquid fund investments. However, you will have to pay capital gains tax. 

Whatever profits that you earn is known as capital gains. These gains are taxed based on the duration of your investment (holding period).

Let’s look at the Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG) tax that you might have to pay:

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Liquid funds offer an indexation benefit, which means that the initial purchase price (NAV) will be adjusted as per the inflation rate. 

Higher the purchase price (adjusted for inflation), lower the tax you’ll have to pay. 

How To Invest In Liquid Mutual Funds

The easiest way to invest in liquid mutual funds is through the Cube Wealth app. Cube gives you access to a curated list of the best liquid funds. 

These liquid funds are handpicked by our mutual fund advisor, Wealth First. WF has a historical track record of beating the market by approximately ~50%. 

The Cube Wealth app also makes it easier for you to invest in liquid fund SIPs with the QuickSIP and SuperSIP feature. 

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Speak to a wealth coach before you invest in any mutual fund. A wealth coach can help you identify your investment goals, risk tolerance, time frame, and more.

But more importantly, you can invest in some of the best mutual funds for medium-term and long term goals. You can do this after speaking to a wealth coach or yourself using the perfect portfolio builder. 

Download the Cube Wealth app or speak to a wealth coach today to know more.   

About Wealth First

5 Best Liquid Funds In India 

Here’s a snippet of the best liquid funds to invest in currently according to our mutual fund advisor, Wealth First. 

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*Note: Facts & figures are as of 15-12-2020. While we update our blogs regularly, download the Cube Wealth app for the latest information on liquid funds. 

Popular Assets: Handpicked Mutual Funds

Summary

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In-App Guide: Quick SIPs for MF