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Liquid Mutual Fund Schemes

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Liquid Mutual Funds Schemes are a type of debt mutual funds.

These schemes are investments that allow you to park your excess money for few days.

Liquid funds are the most preferred instruments to invest by corporate companies to temporarily park their money.

Retail investors too can use these schemes to hold money for few days and get slightly better returns compared to Bank savings account or fixed deposits.

Further, these can be used a temporary schemes to park funds so as to make a lumpsum investment and then do a Systematic Transfer Plan to a chosen targeted equity scheme.

A Liquid Scheme is the money markets / debt securities whose maturity will be like in 91 days.

The valuation of the underlying assets of liquid scheme will be as such that for all securities that mature in over 60 days are valued at mark-to-market (MTM).

In general, fund managers of liquid schemes invest in securities that mature in less than 60 days.

Hence, these are one of the low risk priced instruments in the mutual funds product ladder.

In general, these are considered as the most liquid and yet the most secure instruments.

If you are a stock market trader or investor, you would like to use Liquid BEES for temporary parking of money.

Liquid Scheme Selection

If I am a retail investor and if my sole intention of using funds is to park money for few days, it would be better to use a liquid fund scheme from an AMC that is hardly use for my other financial goals.

For example, If I am already invested in other schemes of DSPBR, ICICI Pru, Franklin Templeton etc., I will avoid them for liquid funds.

However, if I invest in liquid funds solely for channeling the money to target equity schemes using the Switch method or the STP method, I have to invariably select the liquid scheme of the same fund house in which I wish to invest in the equity scheme.

Returns from most liquid funds are similar because of the similarity in the underlying assets.

As a security measure, prefer liquid funds that have good AUM, preferably Rs. 1000 crore or over.

Ideal investment time frame

Ideally, these schmes are good to invest for few days to maximum 3 months.

For temporary investment beyond 3-month period, other forms of debt schemes would fetch slighly better returns over liquid schemes.

In some cases, Liquid, Treasury and Ultra-short term funds or even some short term funds have the same lock-in.

In such a case, it is important that you pick the scheme that is right for your holding period.

Ideal Plan and Option

In general, investors of liquid schemes can invest in DIRECT Plan or REGULAR Plan.

Further, under each plan, they have an option of GROWTH and DIVIDEND.

If DIVIDEND is opted, sub option of Payout or Re-investment is provided.

If you are an individual / independent investor, it is always better to go for DIRECT plan over REGULAR plan.

Further opt for GROWTH option over DIVIDENT option.

By chosing so, you will clearly understand the growth of the scheme and an get to know how much the scheme has earned for you at the time of redemption.

Do I have to select multiple liquid schemes when investing huge amount?

In general, almost all liquid schemes give the same return.

So, it does not make sense to invest in multiple liquid schemes if your sole intention is to park money for few days.

However, to reduce risk, if you are investing huge corpus of moeny, you may consider diversification of your investment amongst two or three liquid schemes at maximum.

The diversification is important for reducing risk and not to get better returns.

Examples of some good liquid schemes

That said, my Liquid fund picks are:

  1. Indiabulls Liquid Fund
  2. JM High Liquidity Fund
  3. Birla Sun Life Floating Rate Fund - Short Term Plan
  4. Peerless Liquid Fund

As usual, go for Direct Plan - Growth Option

Exit Load

Liquid Mutual Fund schemes do not have an exit load.

This is because, the product design of the scheme was such that they give liquidity. i.e availability of funds on demand.


Gains that arise from Liquid Mutual Funds are taxed as per capital gains of debt mutual fund schemes.

Liquid Fund Redemption

Question: Generally, when I give a redemption request today, when will get the funds in my bank account?

Liquid funds are used for investing for one or few days and hence provide high liquidity.

If the investor gives a redemption request before the cut-off time (usually 1 PM Noon) of the transaction day, he is likely to get the funds on T+1 day i.e on the next bank working day.

The funds will usually be sent by NEFT and hence the next day morning, when the redemption is processed, we would get an email with details about the NEFT transfer.

The process is same irrespective of offline or online transaction and irrespective of where it is given i.e MyCAMS, KarvyMFS, Mutual fund website, MF Utilities or distributor websites (such as ICICIDirect)

STT or Securities Transaction Tax is not applicable on debt or debt-oriented mutual fund (including liquid fund) units.

Other Notes

  • If you are already holding the funds in an Equity scheme and want to switch the funds to a Liquid scheme, it better to switch to the liquid fund of the same AMC rather than redeeming to bank account and then investing again in a liquid scheme. This is because almost all liquid schemes give the same return.

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