Liquid funds are a category debt mutual funds that primarily invest in financial instruments like treasury bills, commercial papers, fixed deposits and any other form of debt securities. The most defining feature of these funds is that they are short-term investments and come with a maturity period of 91 days.
The process of NAV calculation for liquid funds is also unique. It is calculated for 365 days. In case of other debt funds, the calculation is based only on business days.
Another significant benefit of these funds is that they do not come with any lock-in period. You can withdraw any amount, and the withdrawal is processed within 24 working hours of application. There are also no entry and exit loads applicable to these funds.
More and more investors are choosing the best performing liquid funds to invest in due to several reasons. The primary reason is that they have the lowest risk associated with their interest rates. It is due to the fact that these investments are primarily in fixed income securities, which mostly have high credit ratings, and they have an extremely short maturity period.
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Features of Liquid Mutual Fund
The primary purpose of the best performing liquid mutual funds is preserving capital and generating income through ample liquidity. Here are a few features of liquid funds that clarify their purpose further.
There are essentially two tax slabs that liquid funds are subjected to- for long-term and short-term redemptions, respectively. Should you redeem your funds before 36 months, you will be eligible for short-term capital gains (STCG) tax. This tax regime is calculated by adding the STCG to your income and then taxed according to the applicable income tax slab.
Long-term capital gains (LTCG) tax is applicable when you hold the investment for more than 3 years. The payable tax is 20% with indexation.
If, however, you choose to avail the dividend option, you will be eligible for dividend distribution tax (DDT) of 29.12%.
Who Are These Funds Suited For?
If you want to park some surplus money for a short time and your risk appetite is low, you should consider the est liquid funds to invest in 2019 . These funds bear the least amount of risk across all fund categories and offer returns higher than a savings account. Do note that equity funds generate higher returns, often in multiples of what liquid funds do, but they are also proportionately riskier.
However, investors should refrain from investing their full emergency corpus on liquid funds. Although they are exceptionally liquid, most funds require 24 hours to be disbursed. In case of emergencies, that could pose a huge challenge.
Also, investors should understand that even the best performing mutual funds are not entirely risk-free. NAV value of a liquid fund may fall drastically if the credit rating of its underlying assets takes a nosedive. Although rare, it is not unheard of.
There are several significant benefits of investing in best liquid funds in India, via SIP. Let’s see some of the advantages below:-
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