Why Invest in Liquid Funds for the Short Term
A Short Introduction to Debt Funds
Benefits of Liquid Funds
Why Invest in Liquid Funds
In the above example, the money is deposited into the liquid fund as a lump sum and it is withdrawn as a lump sum. An alternate strategy is also available – the systematic withdrawal plan (SWP). In this case, the investment is made into the fund as a lump sum however the withdrawal is made periodically – a process which is exactly the opposite of a SIP (Systematic Investment Plan). In the case of an SWP, a portion of the units held by the investor is redeemed on a specific date every month and it gets credited directly to the bank account of the investor. The process continues till the entire holding of the liquid fund is liquidated.
Taxation Rules for Liquid Funds
Long term capital gains rules are applicable to liquid funds in case units of the mutual fund have been held for over 3 years from the date on which they were allotted. In case the redemption of liquid fund units are completed beyond the 3 year period, the capital gains thus obtained are taxed at 20% with indexation benefits and 10% without indexation benefits. Dividends obtained by the investor from liquid fund investments are currently not taxable. However, a dividend distribution tax of 25% is payable by the fund house to the government. This tax forms a part of the expense ratio of the dividend option of liquid funds and tends to reduce the returns on offer.
Investing in Liquid Funds through Paisabazaar.com
Top Liquid Funds to Invest In
- ICICI Prudential Liquid Plan
- Reliance Liquid Fund
- Birla Sun Life Floating Rate Fund – Short Term Plan