A liquid fund is a type of debt fund which invests in debt and money market instruments such as commercial paper, call money, government securities, treasury bills etc, which feature a maturity period of up to 91 days.
The below is a list of the top 5 Liquid Funds in 2019.
Top 5 Liquid Funds
|Fund Name||1-Year Return||3-Year Return||5-Year Return|
|Franklin India Liquid Fund||7.53%||7.7%||7.78%|
|Axis Liquid Fund||6.84%||6.52%||7.03%|
|Aditya Birla Sun Life Liquid Fund||7.53%||7.18%||7.7%|
|Nippon India Liquid Fund||7.49%||7.17%||7.66%|
|ICICI Prudential Liquid Fund||7.33%||7.04%||7.56%|
|L&T Liquid Fund Direct Growth||7.08%||7.04%||7.53%|
|UTI Liquid Fund Direct Growth||7.2%||7.07%||7.53%|
|BOI AXA Liquid Fund Direct Growth||7.31%||7.13%||7.64%|
|Tata Liquid Fund Direct Growth||7.18%||7.07%||7.55%|
Source: Value Research, All data as on Oct 22, 2019.
- Franklin India Liquid Fund
Franklin India Liquid Fund is an over a decade old fund which made its debut in September 2005. It is a well-performing liquid fund which has given returns better than its benchmark during both the short-term and long-term periods. It also features a credit worthy portfolio which has invested nearly all of its assets in AAA/A1+ rated debt instruments.
Both the Average Maturity and Modified Duration of Franklin India Liquid Fund are 0.09 years, while its Yield to Maturity (YTM) is 7.36%.
- Axis Liquid Fund
Axis Liquid Fund is an established fund which was launched in October 2009. The scheme has demonstrated an impressive performance track record, outperforming its benchmark during all the above-mentioned tenures – 1 year, 3 years and 5 years. The scheme is backed by a very strong portfolio of highly credit rated debt instruments.
The Average Maturity of the scheme is 41 days. The Modified Duration and yield to maturity of the scheme stand at 39 days and 6.94% respectively.
- Aditya Birla Sun Life Liquid Fund
Aditya Birla Sun Life Liquid Fund made its debut in March 2004. It is a suitable liquid fund for investors with a long-term investment perspective (5 years and more). The scheme has invested all its assets in either sovereign or AAA rated debt securities which features zero or negligible risk quotient.
The Average Maturity and Modified Duration of the scheme are equal and stand at 0.10 years. The YTM of the scheme is 7.29%.
- Reliance Liquid Fund
Reliance Liquid Fund is one of the oldest liquid funds which was launched in December 2003. Although the scheme has been able to outperform its benchmark only during the last 5 year period, the 1 year and 3 year returns of the scheme are considerably high (more than most of the savings bank account interest rates). The scheme has invested nearly all of its assets in AAA/A1+ rated debt instruments with around 3% in unrated debt securities.
The Average Maturity and the Modified Duration of the scheme are 48 days and 44 days respectively. The YTM of the scheme is 7.25%.
- ICICI Prudential Liquid Fund
ICICI Prudential Liquid Fund has been in existence since November 2005. The scheme is an ideal liquid fund for long-term investment horizon. The scheme has yielded attractive returns however has been able to outperform its benchmark only during the previous 5 year period. The scheme’s portfolio features zero default risk since all of its assets are invested in either sovereign or AAA rated debt instruments.
The Average Maturity of the scheme is 33.96 days whereas its Modified Duration is 31.69 days The scheme has a YTM of 7.18%.
Benefits of Liquid Funds
- Least Risk: Liquid funds carry the least level of risk and are the least volatile among all types of debt mutual funds due to their extremely short maturity period and the fact that these funds mostly invest in instruments with high credit ratings.
- High Returns: Liquid funds offer returns ranging between 7%-8% over long-term periods (3 years and 5 years) which are higher than the interest rate offered on savings account by many banks.
- High Liquidity: Liquid funds provide unmatched liquidity to investors since the money remains invested for such a short period of time. Thereby, these funds allow investors to redeem their investments as and when required. On redemption, your proceeds from liquid funds are credited to your account within 1-2 days.
- Instant Redemption: Some liquid funds offer the facility of instant redemption (such as ICICI Liquid Fund). This means that on placing a redemption order online, you immediately get the proceeds in your bank account. However, market regulator SEBI (Securities and Exchange Board of India) has capped the amount of instant redemption to Rs. 50,000 or 90% of portfolio value, whichever is lower.
Some mutual fund houses have linked liquid funds to debit cards such as Reliance Mutual Fund. The Reliance Any Time Money Card allows withdrawals of:
- Up to 50% of the balance in your Reliance Liquid Fund account or
- Up to permissible limit determined by the bank or
- Rs. 50,000
whichever is lower at Visa enabled ATMs.
Who Should Invest in Liquid Funds?
Investors who wish to park their idle money for a short period of time, bearing the least amount of risk, should go for liquid funds. Liquid funds generally give returns higher than savings accounts but similar to fixed deposits. However their returns are less than equity funds or balanced funds which involve a greater degree of risk.
Cut-Off Time for Liquid Funds
The cut-off time for investing in liquid funds is 2 pm. If you invest in a liquid fund before 2 pm, you will be allotted units at the Net Asset Value (NAV) of the previous day. If you invest in a liquid fund after 2 pm, you will be allotted units at the NAV of the same day. You can read more about the cut-off timings of mutual funds here.
Note: Please note that if you are purchasing a mutual fund scheme through Paisabazaar.com then the purchase cut-off time for all types of schemes (equity, debt or liquid fund) is 1 pm as we need some time in hand to be able to process your request.
How are Liquid Funds Taxed?
Being a type of debt fund, liquid funds attract capital gains tax. The rate of taxation depends on the holding period, i.e. the period for which the investor kept his/her money invested in the fund.
|Type of Capital Gain Tax||Holding Period||Tax Rate|
|Short-Term Capital Gains Tax||Less than 36 months||Income Tax Slab Rate|
|Long-Term Capital Gains Tax||36 months or more||20% (with indexation*)|
*Indexation accounts for inflation to reduce your tax liability.
Latest News on Liquid Mutual Funds 2019
End of last month (October 2019) SEBI (Securities and Exchange Board of India) finalised and announced a new graded structure for exit loads on Liquid Funds. SEBI had earlier sent a letter to AMFI (Association of Mutual Funds in India) on October 11th putting forward the new plan. The exit load will apply to investors-both retail and institutional-if they redeem their investments before 7 days, and be reviewed annually by AMFI. Know more go here.