Liquid Funds

Introduction to Liquid Funds

Liquid funds are crucial in any investment market. The concept of liquid funds is that they are as good as having hard cash. In fact investing in liquid funds helps investors derive greater benefit as compared to storing it in a savings account. Real estate is considered to be the least liquid of all assets while a savings account is quite liquid in comparison. To put it in simple terms, Liquid funds are those which can be redeemed in a cash form within 24 hours. This type of investment provides a great attraction to investors as it gives them the satisfaction of having instant access to their funds as and when required.

Liquid funds usually have a shorter investment period and can be invested in the form of monthly, weekly or even daily dividends! These fund types usually have a lower risk factor and comprise of various money market instruments. This market deals with debt instruments such as certificate of deposits, commercial paper and treasury bills. The maturity of instruments held is between three and six months.

Investments and Risk factor

Most funds have a lock-in period of a maximum of three days to protect

against procedural (primarily banking) glitches, and offer redemption proceeds within 24 hours. However, some funds may even have a lock in period of a week or a month or more. However, the tenure is always far less than a normal mutual fund.

Lock-in Period For Liquid Funds

Taxation is probably one of the most important concerns while investing in any vehicle. Investors want to ensure that they have to pay lesser tax while continuing to enjoy higher benefits. Lets take a look at the difference in taxations between Liquid Funds and Fixed Deposits. The Liquid fund needs to pay a Dividend Distribution tax of 25% and a surcharge of 0.75% which brings the total tax percent to 25.75. On the other hand Fixed deposits comprise of a 30% tax percentage along with a 3% education cess and a 10% surcharge (if the persons income is above 10 lacs) which clearly proves that there is a straightforward tax advantage when one chooses Liquid Funds over Fixed Deposits.

Liquid Funds v/s Fixed Deposits

Investing in Liquid Funds in India is extremely simple and all it requires a little bit of research to help you find the fund that best suits your capabilities. There are various types of funds depending on the Dividends and the initial investment required. Make it a point to select a platform that has years of expertise in providing high quality liquid funds that have known to give great returns to the investor.

Who do these funds benefit?

• Desiring a high degree of liquidity and minimum interest rate risk• Having a short / ultra short term investment horizon• As an alternate to a traditional savings / current bank account for parking

of short term surplus.• Using it as a conduit to transfer funds systematically to other schemes

such as diversified equity funds

Investing In Liquid Funds in India

Here are some key features regarding Liquid Funds :

• No Entry and Exit load (sometimes exit load is charged if redeemed before the lock in period).

• Low annual fee 0.30 to 0.70%.• Variable Minimum investment amount according to scheme.• Great tax benefits.• Easy liquidation, hence the name.• Good short term returns.• Liquid funds have the restriction that they can only have 10 per cent or

less mark-to-market component, indicating a lower interest rate risk

Important Points

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• Registered office: Kotak Securities Limited, 1st Floor, Bakhtawar, 229, Nariman Point, Mumbai - 400021. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230/INE 011207251, OTC INB 200808136, MCXSX INE 260808130.

• Disclaimer: Investments in securities are subject to market risks, please read the SEBI prescribed Combined RDD prior to investing.

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