3 Top Rated Best Performing Liquid Funds To Invest Now For Short Term

Liquid funds in the mutual fund landscape is a debt fund category fund and time and again this mutual fund class is promoted by experts as an alternative to savings bank account as well as a good investing avenue to create contingency or emergency fund.

Typically these funds invest in debt market instruments including money market funds and bonds with maturity term no longer than 91 days. Further these can be the safest route other than banks' savings account to park short term surplus.

Why should you consider investing in liquid mutual funds now?

For now bond yields in the country have headed northwards and was last seen at 6.199% and now as the economy picks up pace owing to vaccination and ceasing of Covid second wave related ill effects, the talks around policy normalization will gather steam. And this shall only provide a boost to bond yield going forward over the next 1-2 years time.

And now as interest rates may see an upturn, liquid funds can be an ideal choice in the debt category as the impact shall be favourable for it. In a rising interest rate scenario, liquid funds get re-priced higher.

What parameters to look at when choosing a liquid mutual fund?

1. You invest in a liquid fund to redeem in the short term, hence liquidity of the underlying portfolio needs to be a prime concern.

2. Credit quality: There should be no risk to your principal investments as well as on the return part.

So, as against to opting for low-rate bank deposits you can park short term surplus in liquid funds. Also, fixed deposits are not able to gain the benefit of rising interest rate as the interest gets locked in for the entire term.

Objective with which liquid funds work

These mutual funds aim to provide short term investment avenue as well as preservation of capital and moderate income. Short term investments invested into by these funds include treasury bills, certificates ofdeposit, commercial paper and inter-bank call money, government securities, etc. Important point to note here is that these funds as against other funds do not witness high volatility.

Understanding rising interest rate impact on debt funds like liquid funds

Though inflationary fears have been mounting but government is giving weightage to the growth factor and may unlikely to hike rate any time soon. Nonetheless, sooner or later we will see a hike in rates there needs to be understood its impact on bond investors.

Now, as and when interest rates in the economy go up, bond prices go lower and hence NAV also goes down thus lowering down the returns for investors. Nonetheless, the impact is less pronounced for funds with securities of lower term maturities as in the case of liquid funds.

1. JM Liquid Fund -Direct (Growth) Plan

This liquid fund offering is from the house of JM Financial Mutual Fund and commands an asset size of Rs. 1351.95 crore. The expense ratio for the fund is a meagre 0.22%.

The fund is CRISIL 5 star rated and is mainly invested into debt that comprises mostly G-securities together with low risk securities. 

Started in the year 2013, the fund's benchmark is CRISIL Liquid TRI and has given a return of 7.2% since inception. SIP in the fund can be started for Rs. 500 while for lump sum one needs to dole out a minimum of Rs. 500.

The top debt investments of the fund comprise T-Bills, Commercial Paper, CDs etc.

Further as per the Morning Star rating agency the fund enjoys a high credit rating.

Liquid fund	SIP 1-year return	SIP 3-year return	SIP 5-year return
JM Liquid Fund direct Growth	3.32%	4.35%	5.28%

 

 

2. Canara Robeco Liquid - Regular Plan - Growth

The fund commands an AUM of Rs. 2399 and an expense ratio of just 0.15%. The NAV of the fund as on July 28 is 2484.8217. The fund is classified as a low risk investment option.

Fund aims to enhance the income, while maintaining a level of liquidity through, investment in a mix of MMI & Debt securities. However, there can be no assurance that the investment objective of the scheme will be realized.

Now coming to its investments, the fund's corpus is mostly parked in debt of which over 50% is in G-securities. Note the fund enjoys a rating of 5-Star by CRISIL.

Again the fund carries a high credit quality implying low risk in the underlying instruments. Launched in the year 2013, the fund since inception has offered a return of 6.99%.

In a 1-year period the fund has offered a return of 3.12% and SIP in the fund can be started for a minimum of Rs. 1000.

 

Liquid fund	SIP 1-year return	SIP 3-year return	SIP 5-year return	SIP 10-year return
Canara Robeco Liquid - Direct Plan - GrowthLiq	3.18%	4.08%	5.01%	6.39%

 

3. Edelweiss Liquid Fund - Direct Plan - Growth

The CRISIL 4-Star rated fund commands a low expense ratio of just 0.11% and an AUM of Rs.1064.23 crore.

NAV or net asset value of the liquid fund by Edelweiss as on July 28, 2021 stands at 2683.91. Mutual fund risk-o-meter defines the mutual fund to be low to moderate in risk.

Investments of the fund are primarily parked in debt (over 85%).Benchmark of the fund is CRISIL 10 year Gilt Index.

The fund kicked off again in the year 2013 had since inception generated a return of 7.11%. SIP in the fund can be started for Rs. 500 while for lump sum minimum investment needed is Rs. 5000.

SIP annualised return 

Liquid fund	SIP 1-year return	SIP 3-year return	SIP 5-year return
Edelweiss Liquid Fund - Direct Plan - Growth	3.48%	4.57%	5.44%

 

Taxation of liquid funds

If the mutual fund units are sold after 3 years from the date of investment,  taxed at the rate of 20% applies after providing the benefit of inflation indexation.

If the mutual fund units are sold within a period of 3 years from the date of investment, entire amount of gain is added to the investors' income and taxed according to the applicable slab rate.

No tax is to be paid as long as you continue to hold the units.

In respect of the dividend, this income is added to investors income and taxed as per his or her tax slab. And in a case if dividend income exceeds over Rs. 5000 in a financial year then TDS at the rate of 10% is deducted by the Mutual fund.

 

Disclaimer:

The mutual fund investment is risky too and herein the discussed mutual fund category is to reap a better return than bank savings accounts. Investors can channelise their short term surplus into the funds category. Nonetheless, the investments listed on the website need not be construed as investment advice.

GoodReturns.in