WHAT ARE LIQUID FUNDS? BENEFITS OF LIQUID FUND !

What are liquid funds !

WHAT ARE LIQUID FUNDS? BENEFITS OF LIQUID FUND !
WHAT ARE LIQUID FUNDS? BENEFITS OF LIQUID FUND !

Table of Contents

* Benefits of liquid Fund

  *minimum risk
  *Return
  *High liquidity
  * Instant redemption

* How do tax on liquid funds looks ?

  • Do you have more money in hand but do not want to lock them in fixed deposits? Then, instead of placing a huge amount in your savings bank, you can choose options like liquid funds.                                                                                                                                                                      In the current high interest rate scenario, if you have a desire to earn a little while keeping your money with you, then the liquid fund can do better than the savings account.                                        
  •  You can get interest between 7-9% in these funds, which is better than fixed deposits and more benefits than we will look forward to.
Liquid funds are types of debt mutual funds that invest your money in very short-term market instruments such as treasury bills, government securities, and are said to be the least risky money.                                                                                                                                                                       These funds can invest in instruments up to 91 days of maturity, and in general, maturity is generally much less than that.

NAV (Net Asset Value) of funds is calculated for 365 days, unlike other debt mutual funds, where NAV is only calculated for business days.

 There is no restriction of lock-in period in liquid funds. This allows funds withdrawal within 24 hours to be processed within 24 hours.

 Therefore,

 units for all transactions received within the time cut (2:00 pm) are allotted according to the previous day. Liquid funds have the lowest interest risk, which is linked to all debt funds.

The reason for this is that they primarily invest in fixed income securities with small income. Another notable advantage of Liquid Fund is that they do not have any entry or exit load or charge.

BENEFITS OF LIQUID FUND

MINIMUM RISK

Liquid funds keep the minimum level of risk and are less volatile for all types of debt mutual funds due to their lower maturity period, and the fact that these funds mostly invest in higher credit rating instruments.

RETURN

Like fixed deposit rates, liquid fund returns shift based on the prevailing interest rate in the economy. The repo rate in India has dropped from 8% in 2014 to 6% now.

For this reason, at a high rate of 9% in 2014, the SBI Fixed Deposit rate of one year is now 6.80% and in the same way, liquid fund returns also decreased from 9-9.2% in 2014 to almost 7-7.5% now. But this return is lower than the FD and there is no folk-better time than this period.

HIGH LIQUIDITY

Liquid funds provide unlimited liquidity to investors because money is levied for such a short time.

 From which these funds allow investors to capitalise on their investment when needed. At redemption, your income from the liquid fund gets credited to your account within 1-2 days.

INSTANT REDEMPTION

Some liquid funds offer instant redemption (such as ICICI liquid funds). This means that when you place an order online, you get income in your bank account right away.

 However,

 the market regulator SEBI (Securities and Exchange Board of India) has restricted the amount of immediate redemption to Rs 50,000 or 90% of the portfolio value, whichever is less.

 Some mutual funds have linked the liquid funds to the Reliance Mutual Fund like debit card, that is, you can also use the deposit amount in your liquid fund through a direct ATM card.

HOW DO TAX ON LIQUID FUNDS LOOK?


Being a type of debt fund, liquid funds are subject to Capital Gain Tax. The rate of taxation depends on the holding period, ie the period for which the investor has kept his wealth invested in the fund.

If the holding period is less than 36 months, then liquid fund attracts short-term capital gains (STCG) tax and if the holding period is 36 months or more then it has a long term capital gain (LTCG) tax.

STCG is levied on your income tax slab rate (which can be as high as 30%). With indexation at LTCG, it is 20%.

 Indexation is the comfort given by inflation or rising inflation, and for this reason, liquid funds are lower than FDs. 

But in the FD, there is advance tax, that is, you have to pay tax on interest during the public period, whereas you get the benefit of that interest on maturity after the public.


thanks for the time .

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