Closer to March, your budget may have to accommodate a few one-off expenses. If you have not already thought of those, here are a few:
One, you would be required to pay your self-assessment tax a few months after the close of this financial year; with July, likely to be the final cut-off date.
Two, if you are changing schools for your kid or are required to pay a massive upfront fee at the beginning of the next academic year, then this may be the time to set aside a sum for it.
Three, post the final term at school, its vacation time for kids. If you have not thought about the place, never mind; you can at least set up a fund for this over the next couple of months.
Liquid funds come in handy for these requirements (and much more) as they will ensure that money is made available to you when you require it, while still earning better returns as compared with your savings bank account. If you are a robust spender and let such money lie in your savings account, chances are that you may swipe your way into the money ‘mentally’ set aside for specific needs.
How you can build
Agreed, it is not easy to set aside a big sum at one stride in March, that too when some of you may still be investing towards your last minute Section 80C tax benefit requirements. But here are some ways to go about doing this: First, check if you are continuously running high surpluses in your savings account post all your operating monthly expenses. If so, shift a third or more of such surplus to a liquid fund. For this purpose, add up the balances in your multiple saving bank accounts.
If not, try to do a monthly investment using an SIP or simply invest lump sums as and when you can spare and invest them into a liquid fund.
Secondly, check if you have any investments in deposits or other modes coming up for maturity in the near term. If they do and you have not set aside such money for any other goal, then transfer the required money alone into liquid funds and invest the rest in options that suit you. Do not simply let this maturity amount lie in your savings account.
Thirdly, there is an option that you should use sparingly and only if you are unable to accommodate the first two. If you are sure you will be in real need of money over the next few months, then do a quick portfolio check of your mutual funds. If you have a portfolio/fund that is not particularly allocated towards achieving any goal, see if you can sell some of the laggards in the portfolio. Ideally, we would recommend a switch on such funds but for any pressing need for the money.
You can also book profits in such a portfolio/fund without having to suffer capital gains tax (investments over one year in equity funds will not suffer capital gains tax) nor exit load. When we say profits, you must have had an absolute return of at least 20-25 per cent on the fund or portfolio to sweep such profits.
If there is an SIP running, remove only that many units (if possible) which have been in the portfolio for over a year to ensure you do not suffer short-term capital gains. Please note that we would ideally not like to disturb any portfolio that is delivering well but for urgent requirements. Ensure that you still retain the fund and only sell some units. Transfer this money into any liquid fund in the same fund house.
What to choose
If you need to save money in a liquid fund through SIP, then go for those schemes that have an SIP option. Not all funds have. Just to provide a sample list of some of the good funds that have an SIP: Pramerica Liquid, IDBI Liquid, HDFC Cash Management Savings Liquid and JP Morgan India Liquid.
There are others such as DSP BR Liquidity or Birla Sun Life Floating Rate Short Term that do not have SIP facility. This is not an exhaustive list. We took the list based on risk-adjusted returns superior to treasury bill rates at this point. Also check for the minimum amount allowed as investment – it could be Rs 5,000 or Rs 10,000.
If you are booking profits in some of the equity funds and shifting to liquid funds, you might as well use liquid funds within the fund house. Remember that there is no huge variance in performance of most liquid funds. Hence, it may be easier to shift within the fund house.
What if….
What if you never went on a vacation or actually calculated a refund from the income tax department? No harm done. Instead of letting the money lie in the liquid fund, quickly initiate a STP (or switch, depending on the quantum of money) to move the money to an equity/balanced/debt fund of your choice or which suits your risk profile.
Remember, a contingency fund for emergencies should be continuously parked in liquid funds. But specific funds built with goals in mind, if not used, should not be lying around, as liquid funds are not investments; they are merely alternative savings vehicles.
Tax
If you are in the 10-20 per cent tax bracket then you may well prefer the growth option as dividend distribution taxes are higher than that. Otherwise, you may marginally benefit from a dividend reinvestment option.
Liquid funds are not tax free. They may at best be tax efficient. You will have to pay capital gains tax. Now, that is not a disadvantage as savings account interest is taxed. (we thank a few alert readers who pointed out that savings bank interest is not taxed upto Rs 10,000). So read our earlier blog on liquid funds to know how they work and the tax treatment: https://www.fundsindia.com/blog/index.php/mutual-funds/liquid-funds-invest/751/
The above uses are just illustrative examples. You can use liquid funds to save up for your insurance premium, to meet your credit card repayment cycle, to pay your professional statutory payments such as service tax or advance tax. If you are a professional or are self-employed, you can use them for loan repayments and so on. It is up to you to extend the list.
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Thanks for the info.
I have also read your earlier blog on liquid funds. But still i ain’t use these liquid funds and the tax treatement vis a vis bank Savings Account/Fixed Deposit/ Flexi Deposits.
Is it possible for you to illustrate with the following figures.
Lumpsum cash received : Rs. 500000
Monthly Credit card expenses (avg): Rs.15000
Quarterly school fees and incidentals : Rs.15000/ quarter
Yearly school books and uniform expenses: Rs.20000/year
Insurance payable twice a year in six monthly intervals (approx): Rs.25000/instance
SIP in 3 different MF schemes : Rs.15000/month (total for all schemes)
thanks
Hello sir, I suppose in your illustration you have a lump sum. If so, park Rs 1,80,000 in liquid funds of respective fund houses and use STP to shift to the 3 SIPs. Park the rest Rs 320000 in couple of liquid funds and sell them a few days before your requirement. Funds such as Reliance also offer ATM facilities on their liquid funds. The tax treatment for interest on your savings/flexi account will be in the tax bracket in which your rest of income falls. For liquid funds held less than one year, the capital gains tax is 30%. but you can slightly reduce this by opting for dividend reinvestment (currently 27.03% and 28.3% from June). Also, with DDT, the fund house pays it hence you do not have the hassle.
For any further portfolio building advice, kindly use our Ask Advisor tool for a email response or fix an appointment and our advisors will call back. Tks
i always feared liquid funds coz i thought that there is no guarantee that the principal is protected if i invest for short term, for say a little over a year? am i right..
Hello Supriya, Liquid funds do not guarantee your money the way banks guarantee your balance upto Rs 1 lakh (insurance). But that said, while returns in liquid funds may vary, it is highly unlikely that you lose your principal as the investments are in very short-term overnight instruments that are least risky and enjoy high liquidity. When we say this, it means that these funds can shift their instruments in to cash any time. Hence, unless there is any contingency in the financial system it is unlikely that you will face such as scenario of losing principal. But theoretically speaking, yes, there is no guarantee. Tks Vidya
I invest 1 lakh before 5-Mar in my PPF account to get maximum interest throughout the year. I invest fixed amount every month (the day of salary) in short term debt fund which I withdraw around 25-Feb (redemption takes 3-5 calendar days based on working days). However there is an exit load if money is withdrawn from short term debt fund if withdrawn in less than 30 days. Hence, I invest the fixed sum in liquid fund for the month of March since it gets redeemed faster and still gives better returns than savings account.
@Shashi: You will not get full year interest if you invest in PPF before 5 March.
You should infact invest before 5th April so that you get maximum benefit for that financial year.
Thanks for pointing out Sunil. Typo on my part. As you have suggested, I invest the amount before 5-Apr.
Hello Maam,
Thank you for the detailed post.
I have two questions:
1) in case of Liquid Fund vs Auto sweep in facility (SBI Savings Plus account) which one would you consider better?
2) If I carry out an STP from liquid fund to equity fund (same fund house) every month will there be an exit load charged to me?
Please advise.
Regards,
Shantanu
Hello sir,
1. If you were to compare a liquid fund with a sweep in facility, much would depend on the rates prevailing on the deposit and the terms of the sweep out (some banks have restrictions on the amount of sweep out). As far as returns are concerned, a 6-month flexi deposit rate would give just 6.5% per annum. That is currently lower than liquid funds. A 1-year deposit rate at 8.75% is currently lower than the liquid fund category avg. of 8.99% but then this could well change as interest rates fall a few months hence. Hence, it would be tough to assess based on returns. Liquid funds could at best be tax efficient if you are in the 10-20% tax bracket or use the dividend reinvestment option if you are in the 30% tax bracket to reduce the capital gains (for less than a year period). You interest income on deposit is taxed at the slab in which you fall.
2. Liquid funds do not have an exit load, whether you do an STP or sell.
Tks, Vidya
Are other fund houses (besides Reliance) planning to offer ATM cards?
I like the concept that Reliance has come up with, but I am hesitant to give my money to Reliance group. 🙂
🙂 We will keep you posted on this blog if others do offer such facility. But right now it is T+1 to receive liquid fund money in to your account. So its not much of a wait if you wish to take the money out for specified purposes (other than general operatonal expenses). Tks
Hi Vidya,
Once again Thanks for the informative article.
Do you think, we can use Liquid Funds with Flexible SIP, in place of Bank RDs.
As a sample illustration of RDs, do you think below can be replaced with Flexible SIP Liquid Funds.
RD Start Installment RD End Total Months Total Amount Needed In
Mar-13 500 Aug-15 30 15000 Sep-15
Apr-13 500 Dec-14 21 10500 Jan-15
Jul-13 500 Mar-15 21 10500 Mar-15
Oct-13 500 Jun-15 21 10500 Jul-15
.
.
Oct-14 500 Mar-17 30 15000 Apr-17
Sep-17 500 Apr-24 80 40000 May-24
Hope : The posted data is readable. 🙂
Thanks
Hello sir,
Thank you for posting. Liquid funds are not comparable to RDs as their features are different. That said, I certainly cannot say with confidence that liquid funds will beat RD rates. They are right now. But in a falling rate scenario, liquid funds cannot continue to deliver high returns…they are more likely to give savings bank-plus returns. If your time frame in 1.5-2 years, short-term funds and income funds would be the comparable options with RDs. It is worth noting that income funds can change their strategy (within their overall mandate) according to interest rate cycles and also based on credit risks. Hence, they have better chances of delivering superior returns.
But liquid funds have to stick with very low tenure investments (as low as overnight instruments) to ensure liquidity and safety. Hence, while your RD amount may be used by a bank to lend 1-3 year term loans, liquid fund money cannot be used so. Hope this helps. Tks, Vidya
Thanks.
How are liquid funds considered more liquid than others such as debt funds? Don’t they all have the amount of turn around time for selling, receiving the funds and transferring back to my preferred bank account?
Hello sir, Liquid funds allow you to take out money any time without charging any exit load. In most other short-term or other income funds you would have an exit load. That means you can take your money for any emergencies. Two, proceeds from sale of liquid funds come on a T+1 basis (subject to cut-off timings). But many debt funds have a T+2 redemption proceeds date. Other than these, liquid funds are called so, because they invest in very liquid instruments. At some point, if every one invested in a particular liquid funds wants to take out money at the same time, the fund can still liquidate the assets because they are invested in very short-term, liquid instruments that can be sold immediately. But that is not the case with other debt funds as they may hold instruments with varying tenures and some with less liquidity in the debt market. Tks Vidya
Thank you, that was helpful.
Hello Ma’am
i am new member of fundsindia so suggest me best short term(2-3 years) sip investment
thanks in advance
Hello Mriza,
When suggesting a portfolio we need to know your time frame of investment, the risk you can take on and what amount you can spare monthly. We suggest you go through our SIP designer to assess your risk profile. After this, you can use our Ask advisor feature (once you login to your account, click the help tab and you will see this feature). You can either send a mail ro fix an appointment and our advisor will call back. Kindly mention the details I mentioned at the top to enable us to help you. Tks Vidya
Hi Vidya,
I would like to invest in a ultra short term fund for building reserve fund/sort term goals 12-15 months duration.I am in 20% tax slab. please advise which option to choose, dividend reinvestment or growth. Also clarify bank RD Vs ultra short term fund, which one is best.
Thanks very much
Hi Kalai, Templeton India Low Duration if an option if you want to do SIP. Note that ultra-short-term funds will have exit load. This fund will have exit load if redeemed within 90 days. If you do not need an SIP, you can also go for Peerless Ultra Short Term. You can go for growth since you are in the 20% tax bracket.
Pl. refer our reply to an earlier comment on RD vs. liquid funds. I reproduce the same below for your convenience. For further queries on portfolio, pl. use our Ask Advisor feature after you login in: check this link to know where the feature is in your account:http://content.fundsindia.com/images/GettingAdvice.png
Liquid funds are not comparable to RDs as their features are different. That said, I certainly cannot say with confidence that liquid funds will beat RD rates. They are right now. But in a falling rate scenario, liquid funds cannot continue to deliver high returns…they are more likely to give savings bank-plus returns. If your time frame in 1.5-2 years, short-term funds and income funds would be the comparable options with RDs. It is worth noting that income funds can change their strategy (within their overall mandate) according to interest rate cycles and also based on credit risks. Hence, they have better chances of delivering superior returns.
But liquid funds have to stick with very low tenure investments (as low as overnight instruments) to ensure liquidity and safety. Hence, while your RD amount may be used by a bank to lend 1-3 year term loans, liquid fund money cannot be used so.
Tks, Vidya
Thanks Vidya!
Hello Vidya,
STP from liquid fund to equity/debt/income fund work only within AMC?
e.g. DSPBR liquid->STP->DSPBR Top100
or
DSPBR liquid -> STP -> Other AMC (e.g. Quantum long Term equity fund )
Hello Sandeep, yes, only STPs within a fund house is enabled by AMCs. Only then can it be seamless.
Hi Vidya,
I would like to invest@10000 in liquid fund after reading this article. I am not in tax slab. please advise which option to choose, dividend reinvestment or growth.
Thanks very much
Hi Parvinder, Opt for growth to avoid DDT. Tks, Vidya
Hi Vidya,
I want to invest money in liquid funds in SWP appreciation withdrwal option.I have few questions regarding the same
1.I have checked in funds india there is option for new investment and in that we have to chose between growth or dividend but there is no SWP option.Please let me know how to invest through funds india in SWP appreciation withdrwal option.
2.pls suggest some good funds.
3.Pls let me know the tax treatment for the same
Thanks.
Hi Prasanth, I suppose you want to use the systematic withdrawal plan. For this, you should have a source fund, from which you withdraw. Hence, unless you invest in a fund, you cannot use the SWP option. The first stage is therefore investing. FundsIndia very much has this option. You may pl. use the ‘support system’ feature (click help tab and you will see the drop down) and mail or chat with our customer care executives. They will take you through the process.
For suggesting funds, we need to know your quantum of investments, your monthly withdrawal requirement and your time frame. Only then we can decide the funds and also the tax that you will suffer. For this you can mail the details to Ask Advisor (again using the help tab) or fix an appointment with our advisor and they will call back. Pl. see the following image to know where to use these features: http://content.fundsindia.com/images/GettingAdvice.png Tks, Vidya
Which Liquid funds are good & safe to park money.
Hi Sagar, you may refer our article for some liquid funds (mentioned in the end): https://blog.fundsindia.com/blog/mutual-funds/liquids-funds-a-supplement-to-your-savings-bank-account/1302
tks
Vidya
i want to invest in market but i don’t know how to do it so plz guide me
Hi Vinod, Mutual funds is a good way to enter equities if you are new to equity markets. Pl. go through our learning centre: http://pages.fundsindia.com/pages/learning/ to know more about mutual fund investing and equity market investing. You can also watch this video tutorial to walk you through the basics and how to invest: http://pages.fundsindia.com/pages/learning/mf-video-tutorials/
All the best! Thanks, Vidya
Hi Vidya,
Thanks for this informative article. My current annual income is around 8 Lakhs per annum. I have a house loan and so I get good amount of tax benifit because of that. recently I have received 4 Lakhs rupees lamp sum and would like to invest in Liquid funds so that I can use it during my marriage(Planning to get married by end of this year). My question is
1. Which liquid fund to invest? Each website(valueresearch,moneycontrol, fundsindia etc ) have their own list of top fund list and I am confused to where to invest.
2. I want to go for monthly dividend option as this will be used to sum extent to my monthly SIPs on mutual funds. Is it a good idea?
Thanks
Shankha
Hello Mr Shankha, Different websites may use various parameters in choosing funds. Some may place weight to risk adjusted returns or few others may simply go by just point-to-point returns. But there is unlikely to be huge difference in the top quartile performance chart.
FundsIndia too has a few investment worthy liquid funds in its ‘select funds’list (www.fundsindia.com/select-funds). It includes funds such as Birla Sun Life Floating Rate Short Term Plan and Pramerica Liquid.
As far as liquid funds are concerned, whichever you choose, ensure that they have relatively low expense ratio, and a track record of 1-1.5 years at least and a decent asset size of few hundred crores. Also, do you wish to take the dividend payout option and then reinvest the same? Ensure that you have an SIP running, otherwise dividends are often allowed to just lie in the savings account.
Otherwise, choose a dividend reinvestment option and do an STP(systematic transfer plan) from the liquid fund to the fund you have chosen for SIP. This can be done seamlessly in your FundsIndia account. But if you have a different platform, check with your advisor on the right liquid funds so that an STP in the same fund house is made possible. tks, Vidya
Hi Vidya,
Thanks for this informative article. My current annual income is around 8 Lakhs per annum. I have a house loan and so I get good amount of tax benifit because of that. recently I have received 4 Lakhs rupees lamp sum and would like to invest in Liquid funds so that I can use it during my marriage(Planning to get married by end of this year). My question is
1. Which liquid fund to invest? Each website(valueresearch,moneycontrol, fundsindia etc ) have their own list of top fund list and I am confused to where to invest.
2. I want to go for monthly dividend option as this will be used to sum extent to my monthly SIPs on mutual funds. Is it a good idea?
Thanks
Shankha
Hello Mr Shankha, Different websites may use various parameters in choosing funds. Some may place weight to risk adjusted returns or few others may simply go by just point-to-point returns. But there is unlikely to be huge difference in the top quartile performance chart.
FundsIndia too has a few investment worthy liquid funds in its ‘select funds’list (www.fundsindia.com/select-funds). It includes funds such as Birla Sun Life Floating Rate Short Term Plan and Pramerica Liquid.
As far as liquid funds are concerned, whichever you choose, ensure that they have relatively low expense ratio, and a track record of 1-1.5 years at least and a decent asset size of few hundred crores. Also, do you wish to take the dividend payout option and then reinvest the same? Ensure that you have an SIP running, otherwise dividends are often allowed to just lie in the savings account.
Otherwise, choose a dividend reinvestment option and do an STP(systematic transfer plan) from the liquid fund to the fund you have chosen for SIP. This can be done seamlessly in your FundsIndia account. But if you have a different platform, check with your advisor on the right liquid funds so that an STP in the same fund house is made possible. tks, Vidya
Hi Vidya,
Your articles are indeed helpful. Thanks a lot!
Average liquid fund returns are in the range of 8-9% (If I am correct) and most of the funds that I came across have an expense ratio of around 2%. In that sense, again, if I am correct, the effective return is around 6-7%. Instead if I opt for a bank FD (if my investment tenure is around one year) I can have confirmed returns of around 8.5% (in comparison to a growth option chosen in a liquid fund).
Please shed light some light on this thought.
Regards,
Arun.
Hi Arun, the returns you see (based on NAV) is after expense ratio. therefore you need not deduct that separately. Expenses are already deducted before NAVs are diclosed. Hence returns are in the 8-9% range pre-tax. Coming to your quetion, liquid funds offer liquidity, not aim at generating income. Hence, it may not be apt to compare them with FDs. Liquid funds are akin to your savings account rate. Income funds are best compared with FDs. Income funds have managed to deliver superior post tax returns (they are also more tax efficient then FDs if held for over 1 year). Pl. read our analysis on FD vs income funds, written a few months ago: https://blog.fundsindia.com/blog/mutual-funds/income-funds-score-over-fixed-deposits/1324
Tks, Vidya
Thanks indeed, Vidya!
Hi Vidya,
Do you think parking some money in liquid funds for 3 to 6 months generates more income compared to savings account? I have some money in my savings account which i need after 3 to 6 months.
Hi Ram, at the current rates, it is likely that liquid funds generate more then savings bank interest. Unless you have savings account in banks that (just couple of them) that give you 6-7% returns on savings bank. Tks, Vidya
Would you recommend parking money in these banks offering 6-7 %. Does the RBI insurance of upto 1 lac apply in these?
I think only 2 banks are offering such rates.
Hello Kumar, You may certainly park your savings in the banks that offer higher rate. But remember, since savings bank rate is decontrolled, it will also fluctuate with the falling rates of RBI. For instance, when interest rate falls, the savings rate may also reduce. Tks, Vidya
Does the bank insurance upto 1 lac apply in these bank accounts?
Hello Kumar, We do not know which bank accounts you mean. All scheduled banks have Rs 1 lkah as insurance on your savings balance plus deposit put together in each branch. Liquid funds, of course, are not banking products and do not carry any insurance. Tks, Vidya
Dear Vidya
I have around 5 lacs to invest for 3- 6 months what be the best option to go for an short term FD or for go for an liquid fund. I am in 30 % taxable bracket.
Kindly suggest me some good liquid funds.
Regards
Rajeev
Hello Rajeev,
in the short-term of less than 1 year, debt mutual funds too would be subject to tax applicable for your income (your slab rate of 30%). What you can do is go for dividend reinvestment option where the dividend distribution tax (at 28.3% from June 1) will be somewhat lower than your regular tax rate. Pl. see the end of the following article for liquid funds you can consider: https://blog.fundsindia.com/blog/mutual-funds/liquids-funds-a-supplement-to-your-savings-bank-account/1302
Tks
Vidya
Dear Vidya,
I like the lucid style of your writings and your patience in answering queries.
I have a problem in picking a debt fund for a duration of 5 Years, this will be my debt component for my asset allocation.
I have following questions.
1. If i do a SIP into a Debt Fund, say for 18 Months … and then redeem the entire money in 19th Month, How the Tax calculations will happen.
can i have the entire money as a lumpsum and calculate the tax burden (20% with Indexation) or should i need to calculate each and every SIP individually as per the invested duration???
2. How do we select a Debt Fund for as Long as 4-5 Years. Are there any parameters to guage and find out, as we have diversification checks in Equity Funds and various other parameters.
3. For a duration of 4-5 Years what should be the average Maturity, should it be 4-5 years or can i go with a Debt Fund having more than 5 years (say for example 9-10 years) Maturity.
I will be thankful for your prompt response.
Hello Sunil,
Thank you for taking time to put in these questions. As you are a customer of FundsIndia, we would like to keep track of your queries. For this purpose, I request you to do the following: Login to your FundsIndia account and use the Ask advisor feature (pl see: http://content.fundsindia.com/images/GettingAdvice.png). copy paste these questions through that forum. We shall respond to them. This way, we would be able to track of your query for future use as well.
Many thanks. Vidya
Dear Vidya,
I like the lucid style of your writings and your patience in answering queries.
I have a problem in picking a debt fund for a duration of 5 Years, this will be my debt component for my asset allocation.
I have following questions.
1. If i do a SIP into a Debt Fund, say for 18 Months … and then redeem the entire money in 19th Month, How the Tax calculations will happen.
can i have the entire money as a lumpsum and calculate the tax burden (20% with Indexation) or should i need to calculate each and every SIP individually as per the invested duration???
2. How do we select a Debt Fund for as Long as 4-5 Years. Are there any parameters to guage and find out, as we have diversification checks in Equity Funds and various other parameters.
3. For a duration of 4-5 Years what should be the average Maturity, should it be 4-5 years or can i go with a Debt Fund having more than 5 years (say for example 9-10 years) Maturity.
I will be thankful for your prompt response.
Hello Sunil,
Thank you for taking time to put in these questions. As you are a customer of FundsIndia, we would like to keep track of your queries. For this purpose, I request you to do the following: Login to your FundsIndia account and use the Ask advisor feature (pl see: http://content.fundsindia.com/images/GettingAdvice.png). copy paste these questions through that forum. We shall respond to them. This way, we would be able to track of your query for future use as well.
Many thanks. Vidya
Dear Vidya,
Thanks for giving me the path. However, when i ever i try to submit the question, Funds India logsoff… and i have to Login everytime….
I am not sure if my queries are duplicated again and again, thats why i wanted you to know about this.
Hi Sunil,
I am sorry about the network problem. I have requested my customer support dept. to raise a ticket on your behalf. You will receive my response to your email d you have given here (ramidi.mf@gmail.com). Tks, Vidya
In a falling rate scenario, (like what we are going to face), is it worth to invest in SIPs of some GILT funds or Bond funds.? If so, what should be the appropriate time horizon.?
Hi Rajesh,
If youa re talking of long gilt funds, then it may not be a very good idea to do SIPs in them now. Unlike equity funds when market volatility can be used to average costs using SIPs, in theme funds or long gilt funds, SIPs may not work too well if you catch them late. Interest rate cycles, once they turn, may take anywhere between 1-3 years to complete that cycle. Hence, unless your holding is for the very long term it may not be a good idea.
That said, with income funds, since most of them strategically manage interest rate risk, it makes sense to do SIPs for 1-3 years as they tend to have their ups and downs as they move between duration and credit risk. Tks, Vidya
In a falling rate scenario, (like what we are going to face), is it worth to invest in SIPs of some GILT funds or Bond funds.? If so, what should be the appropriate time horizon.?
Hi Rajesh,
If youa re talking of long gilt funds, then it may not be a very good idea to do SIPs in them now. Unlike equity funds when market volatility can be used to average costs using SIPs, in theme funds or long gilt funds, SIPs may not work too well if you catch them late. Interest rate cycles, once they turn, may take anywhere between 1-3 years to complete that cycle. Hence, unless your holding is for the very long term it may not be a good idea.
That said, with income funds, since most of them strategically manage interest rate risk, it makes sense to do SIPs for 1-3 years as they tend to have their ups and downs as they move between duration and credit risk. Tks, Vidya
Dear Madam, I want to park around Rs. 2 laks for 2-3 months. Please sugeest whether liquid fund is for me. I am in 20% tax bracket.
Hi Aditya, For your purpose, liquid funds under growth option (given the tax bracket you are under) is a good choice. You would have capital gains at your slab rate. But that will be lower than the dividend distribution tax (under dividend option). Tks, Vidya
I read somewhere that with dividend re-investment, there is no tax paid by fund or investor. The dividend is re-invested and considered fresh investment. Is this true?
For e.g. if one in 30% tax bracket invests 1 lac and gets dividend of 5000 in 6 mths. Then if person withraws that 1 lac, then he has no tax to be paid and can sell rest of 5000 whenever he wishes?
Hello Kumar, Sorry for the delayed response. I missed your comment. All dividends from equity funds are tax free. All dividends from debt funds, whether paid out or reinvested suffer dividend distribution tax (DDT). While you will not be paying the tax, the fund would already deduct it from the NAV at the time of distributing either the dividend or the units (in case of dividend reinvestment). So indirectly, there is tax suffered.
After that, the units given to you as reinvested dividends, will be valued at the NAV at which it was issued. Hence, if you sell them soon after, you will not suffer tax on it because the sale value less cost will be nil. Tks, Vidya
Dear Madam,
I would Like to know UTI RBPF.
I have 30.If i invest upto 55 years(Through SIP)can i get minimum 10 % retun on that time.
Hi Sajith, UTI Retirement Benefit Pension fund is a debt-oriented fund. So don’t expect high double digit returns. While the fund has delivered over 10% since launch, my suggestion would be for you to tone down your expectation to 9-10% and accordingly save more, as a reserve. If you get more, it will be a good added bonus. Tks, vidya
Dear Madam,
Thank you for your Valuable reply.
Regards
SAJITH
Dear Vidya,
Say for an amount of 75,000, Bank (YES Bank, Savings Bank Account) provides me with 6% interest – Tax Free (as per new taxation rules).
If i were to consider a liquid Fund (with returns of 8%) – Post tax i am earning same amount…
FYI, I fall under 20% Taxation slab…
Does it really matter to invest in Liquid Funds to earn few hunred rupees.
I am asking this just for my scenario, not to discourage anyone from investing in Liquid Funds.
However, for people under 10% tax bracket, it is still beneficial.
Hi Sunil,
Thanks for sharing your views.
1. Interest on savings bank is tax-free to the extent of Rs 10,000. Anything over this (all savings accounts of an individual put together) will suffer tax.
2. The savings bank rates are decontrolled. That means they will not be fixed. When rates fall, they are bound to fall. That means they can very well go lower than the current rate offered.
3. Currently, the 1-year returns of top quartile liquid funds is 9% plus and category avg,is 8.6%. That makes it slightly superior to savings account for someone in the 20% tax bracket. For someone keeping the money as a reserve and holding for over 1 year, the tax is of course much more efficient.
To sum it up, we advocate liquid funds only as a supplement for savings account and not a substitute. Creating emergency reserves (that may or may not be used), parking some huge surplus temporarily (like proceeds from sale of an asset) in a liquid fund can give a few thousands in terms of higher return than savings account.
Thanks
Vidya
“we advocate liquid funds only as a supplement for savings account and not a substitute”, this clears my doubt.
Few things i missed while writing the query (rather haven’t thought of) are “savings bank rates are decontrolled”
For holdings over a period of 1 year, YES, it is a WIN WIN situation.
Thanks for the clarifications.
I admire you guys for the quick response time.
Thanks Vidya.
I have recently invested in Mutual fund as per your suggestions in your site. I am interested to invest in Debt Mutual Funds – Short/Ultra Short Term of 1-2 years of RS 15,000 each on 3 debt funds in coming few months. After researching came up with:
– Birla SL Short/Medium Term Opp – RP (G)
_ Tata FLoater Fund (G)
_ SBI Ultra Short Term Debt FUnd
_ UTI Treasury Advantage Fund – Regular Plan – G
_ ICICI Pru BAlanced ADV (G)
_ Sundaram Debt STP AP(G)
Kindly suggest any 3 DEbt Fend from this or any of your recommendation, which gives best return in 1-2 yrs, best from tax saving point of view and high liquidity which I can encash in few days without exit load.
hello Sir,
Fund specific queries are best asked through your account using the ‘Advisor support’ tab. I have anyway forwarded your query to our advisors. They will call and help you choose the right funds. thanks, Vidya
Hi,
I have read all the discussion which goes on Funds India about Liquid funds. I too wanna go for liquid funds as this is my first time in this i would like to go for lum sum amount. If i go for (Lets say 10K) for a year and consider the return (8% annual), Please let me know how much amount will be mine considering the tax, i am under 10% Tax slab.
and Please elaborate bit about sip in the liquid funds as i think they have short term maturity (91) days.
Hi Ankit, the gains. Supposing your investment is Rs 10,000, your gains will be (assuming your rate) 800. This 800 will be taxed at your slab rate (10, 20 or 30%). You can instead opt for a dividend payout or dividend reinvestment, in which case dividend distribution tax will be paid by the fund house themselves (but deducted from your NAV). Liquid funds are for short term parking of money and meant to earn savings bank plus returns. Any gain on liquid fund/debt fund less than 3 years (whether 90 days or 1 year) will be taxed at your slab rate.
To help us provide you suitable advice, kindly complete your application process with us. Once you open an account with us, you will receive the full suite of advisory services; providing you with right funds for different goals/time frames. thanks.
Hi Vidya, Thanks for this good article, I have a query – I have to pay premiums, fees, etc 3 quarterly, 1 half-yearly and 2 yearly. I am not able to find suitable option to fulfill this need. Please suggest something…
Ashish, You could go with liquid funds and withdraw whenever you please. No exit load but you will have capital gains tax on the gain. thanks
Hi Vidya, Thanks for all information. I actually wanted to check on my expense meeting requirements. My daughter monthly school fees is around 11k and annual charges of 30k. I wanted to check which fund should I invest in to meet these expenses on a regular basis. Should I go for liquid funds or something else. I have around 1.5 lac unused amount as of now. Please suggest.
Mayur, Sorry for the delayed response. You can consider a combination of liquid and ultra short-term funds for your requirement. thanks, Vidya
Hi Vidya, Thanks for all information. I actually wanted to check on my expense meeting requirements. My daughter monthly school fees is around 11k and annual charges of 30k. I wanted to check which fund should I invest in to meet these expenses on a regular basis. Should I go for liquid funds or something else. I have around 1.5 lac unused amount as of now. Please suggest.
Mayur, Sorry for the delayed response. You can consider a combination of liquid and ultra short-term funds for your requirement. thanks, Vidya
Hi Vidya,
Really thanks for the such nice post.
I still have a question on RD vs Liquid fund. I read the comments above and I agreed what you said that RD and liquid fund can not be compared.
But I have small question that suppose if I start RD of 25000 monthly and if I started to put 25000 monthly in liquid fund (Both for 1yr time frame) Which strategy can perform better weather RD or this sip in liquid fund?
I meant is ‘SIP in liquid fund’ can be good strategy over RD of same period?
Thanks,
Pushkar
Hello Pushkar,
Sorry for the delayed response. It simply depends in which interest rate cycle we are in. In the next one year, there is a good chance liquid funds will outperform. But can’t be sure if youa re asking about 2017-18 🙂 thanks, Vidya
Dear Vidya
I have around 5 lacs to invest for 3- 6 months what be the best option to go for an short term FD or for go for an liquid fund. I am in 30 % taxable bracket.
Kindly suggest me some good liquid funds.
Regards
Rajeev
Hello Rajeev,
in the short-term of less than 1 year, debt mutual funds too would be subject to tax applicable for your income (your slab rate of 30%). What you can do is go for dividend reinvestment option where the dividend distribution tax (at 28.3% from June 1) will be somewhat lower than your regular tax rate. Pl. see the end of the following article for liquid funds you can consider: https://blog.fundsindia.com/blog/mutual-funds/liquids-funds-a-supplement-to-your-savings-bank-account/1302
Tks
Vidya
Dear Vidya,
Thanks for giving me the path. However, when i ever i try to submit the question, Funds India logsoff… and i have to Login everytime….
I am not sure if my queries are duplicated again and again, thats why i wanted you to know about this.
Hi Sunil,
I am sorry about the network problem. I have requested my customer support dept. to raise a ticket on your behalf. You will receive my response to your email d you have given here (ramidi.mf@gmail.com). Tks, Vidya
i want to invest in market but i don’t know how to do it so plz guide me
Hi Vinod, Mutual funds is a good way to enter equities if you are new to equity markets. Pl. go through our learning centre: http://pages.fundsindia.com/pages/learning/ to know more about mutual fund investing and equity market investing. You can also watch this video tutorial to walk you through the basics and how to invest: http://pages.fundsindia.com/pages/learning/mf-video-tutorials/
All the best! Thanks, Vidya
Hi Vidya,
I would like to invest in a ultra short term fund for building reserve fund/sort term goals 12-15 months duration.I am in 20% tax slab. please advise which option to choose, dividend reinvestment or growth. Also clarify bank RD Vs ultra short term fund, which one is best.
Thanks very much
Hi Kalai, Templeton India Low Duration if an option if you want to do SIP. Note that ultra-short-term funds will have exit load. This fund will have exit load if redeemed within 90 days. If you do not need an SIP, you can also go for Peerless Ultra Short Term. You can go for growth since you are in the 20% tax bracket.
Pl. refer our reply to an earlier comment on RD vs. liquid funds. I reproduce the same below for your convenience. For further queries on portfolio, pl. use our Ask Advisor feature after you login in: check this link to know where the feature is in your account:http://content.fundsindia.com/images/GettingAdvice.png
Liquid funds are not comparable to RDs as their features are different. That said, I certainly cannot say with confidence that liquid funds will beat RD rates. They are right now. But in a falling rate scenario, liquid funds cannot continue to deliver high returns…they are more likely to give savings bank-plus returns. If your time frame in 1.5-2 years, short-term funds and income funds would be the comparable options with RDs. It is worth noting that income funds can change their strategy (within their overall mandate) according to interest rate cycles and also based on credit risks. Hence, they have better chances of delivering superior returns.
But liquid funds have to stick with very low tenure investments (as low as overnight instruments) to ensure liquidity and safety. Hence, while your RD amount may be used by a bank to lend 1-3 year term loans, liquid fund money cannot be used so.
Tks, Vidya
Thanks Vidya!
Hi Vidya,
Your articles are indeed helpful. Thanks a lot!
Average liquid fund returns are in the range of 8-9% (If I am correct) and most of the funds that I came across have an expense ratio of around 2%. In that sense, again, if I am correct, the effective return is around 6-7%. Instead if I opt for a bank FD (if my investment tenure is around one year) I can have confirmed returns of around 8.5% (in comparison to a growth option chosen in a liquid fund).
Please shed light some light on this thought.
Regards,
Arun.
Hi Arun, the returns you see (based on NAV) is after expense ratio. therefore you need not deduct that separately. Expenses are already deducted before NAVs are diclosed. Hence returns are in the 8-9% range pre-tax. Coming to your quetion, liquid funds offer liquidity, not aim at generating income. Hence, it may not be apt to compare them with FDs. Liquid funds are akin to your savings account rate. Income funds are best compared with FDs. Income funds have managed to deliver superior post tax returns (they are also more tax efficient then FDs if held for over 1 year). Pl. read our analysis on FD vs income funds, written a few months ago: https://blog.fundsindia.com/blog/mutual-funds/income-funds-score-over-fixed-deposits/1324
Tks, Vidya
Thanks indeed, Vidya!
Hello Vidya,
STP from liquid fund to equity/debt/income fund work only within AMC?
e.g. DSPBR liquid->STP->DSPBR Top100
or
DSPBR liquid -> STP -> Other AMC (e.g. Quantum long Term equity fund )
Hello Sandeep, yes, only STPs within a fund house is enabled by AMCs. Only then can it be seamless.
Hi Vidya,
I would like to invest@10000 in liquid fund after reading this article. I am not in tax slab. please advise which option to choose, dividend reinvestment or growth.
Thanks very much
Hi Parvinder, Opt for growth to avoid DDT. Tks, Vidya
Which Liquid funds are good & safe to park money.
Hi Sagar, you may refer our article for some liquid funds (mentioned in the end): https://blog.fundsindia.com/blog/mutual-funds/liquids-funds-a-supplement-to-your-savings-bank-account/1302
tks
Vidya
Hi Vidya,
I want to invest money in liquid funds in SWP appreciation withdrwal option.I have few questions regarding the same
1.I have checked in funds india there is option for new investment and in that we have to chose between growth or dividend but there is no SWP option.Please let me know how to invest through funds india in SWP appreciation withdrwal option.
2.pls suggest some good funds.
3.Pls let me know the tax treatment for the same
Thanks.
Hi Prasanth, I suppose you want to use the systematic withdrawal plan. For this, you should have a source fund, from which you withdraw. Hence, unless you invest in a fund, you cannot use the SWP option. The first stage is therefore investing. FundsIndia very much has this option. You may pl. use the ‘support system’ feature (click help tab and you will see the drop down) and mail or chat with our customer care executives. They will take you through the process.
For suggesting funds, we need to know your quantum of investments, your monthly withdrawal requirement and your time frame. Only then we can decide the funds and also the tax that you will suffer. For this you can mail the details to Ask Advisor (again using the help tab) or fix an appointment with our advisor and they will call back. Pl. see the following image to know where to use these features: http://content.fundsindia.com/images/GettingAdvice.png Tks, Vidya
Hi,
I have read all the discussion which goes on Funds India about Liquid funds. I too wanna go for liquid funds as this is my first time in this i would like to go for lum sum amount. If i go for (Lets say 10K) for a year and consider the return (8% annual), Please let me know how much amount will be mine considering the tax, i am under 10% Tax slab.
and Please elaborate bit about sip in the liquid funds as i think they have short term maturity (91) days.
Hi Ankit, the gains. Supposing your investment is Rs 10,000, your gains will be (assuming your rate) 800. This 800 will be taxed at your slab rate (10, 20 or 30%). You can instead opt for a dividend payout or dividend reinvestment, in which case dividend distribution tax will be paid by the fund house themselves (but deducted from your NAV). Liquid funds are for short term parking of money and meant to earn savings bank plus returns. Any gain on liquid fund/debt fund less than 3 years (whether 90 days or 1 year) will be taxed at your slab rate.
To help us provide you suitable advice, kindly complete your application process with us. Once you open an account with us, you will receive the full suite of advisory services; providing you with right funds for different goals/time frames. thanks.
I have recently invested in Mutual fund as per your suggestions in your site. I am interested to invest in Debt Mutual Funds – Short/Ultra Short Term of 1-2 years of RS 15,000 each on 3 debt funds in coming few months. After researching came up with:
– Birla SL Short/Medium Term Opp – RP (G)
_ Tata FLoater Fund (G)
_ SBI Ultra Short Term Debt FUnd
_ UTI Treasury Advantage Fund – Regular Plan – G
_ ICICI Pru BAlanced ADV (G)
_ Sundaram Debt STP AP(G)
Kindly suggest any 3 DEbt Fend from this or any of your recommendation, which gives best return in 1-2 yrs, best from tax saving point of view and high liquidity which I can encash in few days without exit load.
hello Sir,
Fund specific queries are best asked through your account using the ‘Advisor support’ tab. I have anyway forwarded your query to our advisors. They will call and help you choose the right funds. thanks, Vidya
Dear Madam, I want to park around Rs. 2 laks for 2-3 months. Please sugeest whether liquid fund is for me. I am in 20% tax bracket.
Hi Aditya, For your purpose, liquid funds under growth option (given the tax bracket you are under) is a good choice. You would have capital gains at your slab rate. But that will be lower than the dividend distribution tax (under dividend option). Tks, Vidya
Dear Madam,
I would Like to know UTI RBPF.
I have 30.If i invest upto 55 years(Through SIP)can i get minimum 10 % retun on that time.
Hi Sajith, UTI Retirement Benefit Pension fund is a debt-oriented fund. So don’t expect high double digit returns. While the fund has delivered over 10% since launch, my suggestion would be for you to tone down your expectation to 9-10% and accordingly save more, as a reserve. If you get more, it will be a good added bonus. Tks, vidya
Dear Madam,
Thank you for your Valuable reply.
Regards
SAJITH
I read somewhere that with dividend re-investment, there is no tax paid by fund or investor. The dividend is re-invested and considered fresh investment. Is this true?
For e.g. if one in 30% tax bracket invests 1 lac and gets dividend of 5000 in 6 mths. Then if person withraws that 1 lac, then he has no tax to be paid and can sell rest of 5000 whenever he wishes?
Hello Kumar, Sorry for the delayed response. I missed your comment. All dividends from equity funds are tax free. All dividends from debt funds, whether paid out or reinvested suffer dividend distribution tax (DDT). While you will not be paying the tax, the fund would already deduct it from the NAV at the time of distributing either the dividend or the units (in case of dividend reinvestment). So indirectly, there is tax suffered.
After that, the units given to you as reinvested dividends, will be valued at the NAV at which it was issued. Hence, if you sell them soon after, you will not suffer tax on it because the sale value less cost will be nil. Tks, Vidya
Dear Vidya,
Say for an amount of 75,000, Bank (YES Bank, Savings Bank Account) provides me with 6% interest – Tax Free (as per new taxation rules).
If i were to consider a liquid Fund (with returns of 8%) – Post tax i am earning same amount…
FYI, I fall under 20% Taxation slab…
Does it really matter to invest in Liquid Funds to earn few hunred rupees.
I am asking this just for my scenario, not to discourage anyone from investing in Liquid Funds.
However, for people under 10% tax bracket, it is still beneficial.
Hi Sunil,
Thanks for sharing your views.
1. Interest on savings bank is tax-free to the extent of Rs 10,000. Anything over this (all savings accounts of an individual put together) will suffer tax.
2. The savings bank rates are decontrolled. That means they will not be fixed. When rates fall, they are bound to fall. That means they can very well go lower than the current rate offered.
3. Currently, the 1-year returns of top quartile liquid funds is 9% plus and category avg,is 8.6%. That makes it slightly superior to savings account for someone in the 20% tax bracket. For someone keeping the money as a reserve and holding for over 1 year, the tax is of course much more efficient.
To sum it up, we advocate liquid funds only as a supplement for savings account and not a substitute. Creating emergency reserves (that may or may not be used), parking some huge surplus temporarily (like proceeds from sale of an asset) in a liquid fund can give a few thousands in terms of higher return than savings account.
Thanks
Vidya
“we advocate liquid funds only as a supplement for savings account and not a substitute”, this clears my doubt.
Few things i missed while writing the query (rather haven’t thought of) are “savings bank rates are decontrolled”
For holdings over a period of 1 year, YES, it is a WIN WIN situation.
Thanks for the clarifications.
I admire you guys for the quick response time.
Thanks Vidya.
Hi Vidya,
Really thanks for the such nice post.
I still have a question on RD vs Liquid fund. I read the comments above and I agreed what you said that RD and liquid fund can not be compared.
But I have small question that suppose if I start RD of 25000 monthly and if I started to put 25000 monthly in liquid fund (Both for 1yr time frame) Which strategy can perform better weather RD or this sip in liquid fund?
I meant is ‘SIP in liquid fund’ can be good strategy over RD of same period?
Thanks,
Pushkar
Hello Pushkar,
Sorry for the delayed response. It simply depends in which interest rate cycle we are in. In the next one year, there is a good chance liquid funds will outperform. But can’t be sure if youa re asking about 2017-18 🙂 thanks, Vidya
Hi Vidya, Thanks for this good article, I have a query – I have to pay premiums, fees, etc 3 quarterly, 1 half-yearly and 2 yearly. I am not able to find suitable option to fulfill this need. Please suggest something…
Ashish, You could go with liquid funds and withdraw whenever you please. No exit load but you will have capital gains tax on the gain. thanks
Hi Vidya,
Do you think parking some money in liquid funds for 3 to 6 months generates more income compared to savings account? I have some money in my savings account which i need after 3 to 6 months.
Hi Ram, at the current rates, it is likely that liquid funds generate more then savings bank interest. Unless you have savings account in banks that (just couple of them) that give you 6-7% returns on savings bank. Tks, Vidya
Hi Ram, at the current rates, it is likely that liquid funds generate more then savings bank interest. Unless you have savings account in banks that (just couple of them) that give you 6-7% returns on savings bank. Tks, Vidya
Would you recommend parking money in these banks offering 6-7 %. Does the RBI insurance of upto 1 lac apply in these?
I think only 2 banks are offering such rates.
Hello Kumar, You may certainly park your savings in the banks that offer higher rate. But remember, since savings bank rate is decontrolled, it will also fluctuate with the falling rates of RBI. For instance, when interest rate falls, the savings rate may also reduce. Tks, Vidya
Does the bank insurance upto 1 lac apply in these bank accounts?
Hello Kumar, We do not know which bank accounts you mean. All scheduled banks have Rs 1 lkah as insurance on your savings balance plus deposit put together in each branch. Liquid funds, of course, are not banking products and do not carry any insurance. Tks, Vidya
Thanks for the info.
I have also read your earlier blog on liquid funds. But still i ain’t use these liquid funds and the tax treatement vis a vis bank Savings Account/Fixed Deposit/ Flexi Deposits.
Is it possible for you to illustrate with the following figures.
Lumpsum cash received : Rs. 500000
Monthly Credit card expenses (avg): Rs.15000
Quarterly school fees and incidentals : Rs.15000/ quarter
Yearly school books and uniform expenses: Rs.20000/year
Insurance payable twice a year in six monthly intervals (approx): Rs.25000/instance
SIP in 3 different MF schemes : Rs.15000/month (total for all schemes)
thanks
Hello sir, I suppose in your illustration you have a lump sum. If so, park Rs 1,80,000 in liquid funds of respective fund houses and use STP to shift to the 3 SIPs. Park the rest Rs 320000 in couple of liquid funds and sell them a few days before your requirement. Funds such as Reliance also offer ATM facilities on their liquid funds. The tax treatment for interest on your savings/flexi account will be in the tax bracket in which your rest of income falls. For liquid funds held less than one year, the capital gains tax is 30%. but you can slightly reduce this by opting for dividend reinvestment (currently 27.03% and 28.3% from June). Also, with DDT, the fund house pays it hence you do not have the hassle.
For any further portfolio building advice, kindly use our Ask Advisor tool for a email response or fix an appointment and our advisors will call back. Tks
i always feared liquid funds coz i thought that there is no guarantee that the principal is protected if i invest for short term, for say a little over a year? am i right..
Hello Supriya, Liquid funds do not guarantee your money the way banks guarantee your balance upto Rs 1 lakh (insurance). But that said, while returns in liquid funds may vary, it is highly unlikely that you lose your principal as the investments are in very short-term overnight instruments that are least risky and enjoy high liquidity. When we say this, it means that these funds can shift their instruments in to cash any time. Hence, unless there is any contingency in the financial system it is unlikely that you will face such as scenario of losing principal. But theoretically speaking, yes, there is no guarantee. Tks Vidya
I invest 1 lakh before 5-Mar in my PPF account to get maximum interest throughout the year. I invest fixed amount every month (the day of salary) in short term debt fund which I withdraw around 25-Feb (redemption takes 3-5 calendar days based on working days). However there is an exit load if money is withdrawn from short term debt fund if withdrawn in less than 30 days. Hence, I invest the fixed sum in liquid fund for the month of March since it gets redeemed faster and still gives better returns than savings account.
@Shashi: You will not get full year interest if you invest in PPF before 5 March.
You should infact invest before 5th April so that you get maximum benefit for that financial year.
Thanks for pointing out Sunil. Typo on my part. As you have suggested, I invest the amount before 5-Apr.
Hello Ma’am
i am new member of fundsindia so suggest me best short term(2-3 years) sip investment
thanks in advance
Hello Mriza,
When suggesting a portfolio we need to know your time frame of investment, the risk you can take on and what amount you can spare monthly. We suggest you go through our SIP designer to assess your risk profile. After this, you can use our Ask advisor feature (once you login to your account, click the help tab and you will see this feature). You can either send a mail ro fix an appointment and our advisor will call back. Kindly mention the details I mentioned at the top to enable us to help you. Tks Vidya
Are other fund houses (besides Reliance) planning to offer ATM cards?
I like the concept that Reliance has come up with, but I am hesitant to give my money to Reliance group. 🙂
🙂 We will keep you posted on this blog if others do offer such facility. But right now it is T+1 to receive liquid fund money in to your account. So its not much of a wait if you wish to take the money out for specified purposes (other than general operatonal expenses). Tks
Hi Vidya,
Once again Thanks for the informative article.
Do you think, we can use Liquid Funds with Flexible SIP, in place of Bank RDs.
As a sample illustration of RDs, do you think below can be replaced with Flexible SIP Liquid Funds.
RD Start Installment RD End Total Months Total Amount Needed In
Mar-13 500 Aug-15 30 15000 Sep-15
Apr-13 500 Dec-14 21 10500 Jan-15
Jul-13 500 Mar-15 21 10500 Mar-15
Oct-13 500 Jun-15 21 10500 Jul-15
.
.
Oct-14 500 Mar-17 30 15000 Apr-17
Sep-17 500 Apr-24 80 40000 May-24
Hope : The posted data is readable. 🙂
Thanks
Hello sir,
Thank you for posting. Liquid funds are not comparable to RDs as their features are different. That said, I certainly cannot say with confidence that liquid funds will beat RD rates. They are right now. But in a falling rate scenario, liquid funds cannot continue to deliver high returns…they are more likely to give savings bank-plus returns. If your time frame in 1.5-2 years, short-term funds and income funds would be the comparable options with RDs. It is worth noting that income funds can change their strategy (within their overall mandate) according to interest rate cycles and also based on credit risks. Hence, they have better chances of delivering superior returns.
But liquid funds have to stick with very low tenure investments (as low as overnight instruments) to ensure liquidity and safety. Hence, while your RD amount may be used by a bank to lend 1-3 year term loans, liquid fund money cannot be used so. Hope this helps. Tks, Vidya
Thanks.
Hello Maam,
Thank you for the detailed post.
I have two questions:
1) in case of Liquid Fund vs Auto sweep in facility (SBI Savings Plus account) which one would you consider better?
2) If I carry out an STP from liquid fund to equity fund (same fund house) every month will there be an exit load charged to me?
Please advise.
Regards,
Shantanu
Hello sir,
1. If you were to compare a liquid fund with a sweep in facility, much would depend on the rates prevailing on the deposit and the terms of the sweep out (some banks have restrictions on the amount of sweep out). As far as returns are concerned, a 6-month flexi deposit rate would give just 6.5% per annum. That is currently lower than liquid funds. A 1-year deposit rate at 8.75% is currently lower than the liquid fund category avg. of 8.99% but then this could well change as interest rates fall a few months hence. Hence, it would be tough to assess based on returns. Liquid funds could at best be tax efficient if you are in the 10-20% tax bracket or use the dividend reinvestment option if you are in the 30% tax bracket to reduce the capital gains (for less than a year period). You interest income on deposit is taxed at the slab in which you fall.
2. Liquid funds do not have an exit load, whether you do an STP or sell.
Tks, Vidya
How are liquid funds considered more liquid than others such as debt funds? Don’t they all have the amount of turn around time for selling, receiving the funds and transferring back to my preferred bank account?
Hello sir, Liquid funds allow you to take out money any time without charging any exit load. In most other short-term or other income funds you would have an exit load. That means you can take your money for any emergencies. Two, proceeds from sale of liquid funds come on a T+1 basis (subject to cut-off timings). But many debt funds have a T+2 redemption proceeds date. Other than these, liquid funds are called so, because they invest in very liquid instruments. At some point, if every one invested in a particular liquid funds wants to take out money at the same time, the fund can still liquidate the assets because they are invested in very short-term, liquid instruments that can be sold immediately. But that is not the case with other debt funds as they may hold instruments with varying tenures and some with less liquidity in the debt market. Tks Vidya
Thank you, that was helpful.