Debt Mutual Funds that predominantly invest in debt securities with short term maturities, that yield fixed returns are known as Liquid Funds. These debt securities comprise money market instruments such as treasury bills, commercial paper, certificates of deposits with maturity period up to 91 days. The fundamental advantage of investing in liquid funds is the high liquidity they offer. Liquidity refers to the degree of how quickly an asset can be bought/sold and converted to cash.
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To know more about liquid funds, visit: What are Liquid Funds?
Top 5 Liquid Funds to Invest
Here is a list of top 5 Liquid Funds you can invest in 2020 to generate stable returns:
| Fund Name | AUM (cr.) | 1 Year Returns | 3 Year Returns |
| Franklin India Liquid | ₹3,582 | 6.34% | 6.98% |
| Nippon India Liquid | ₹26,033 | 6.12% | 6.89% |
| Aditya Birla Sun Life Liquid | ₹33,418 | 6.11% | 6.88% |
| Axis Liquid Fund | ₹25,860 | 6.06% | 6.86% |
| Baroda Liquid Fund | ₹3,643 | 5.93% | 6.77% |
{Note: Funds have been ranked on the basis of 3 year returns}
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{Data as on May 19, 2020; Source: Value Research}
1. Franklin India Liquid Fund
It is a debt fund that primarily invests in debt instruments with a maximum maturity of 90 days, with the objective of generating optimal returns for short duration.
| Returns | 1 – Year Returns | 3 – Year Returns |
| Fund | 6.34% | 6.98% |
| Benchmark | 4.21% | 4.22% |
- The fund has consistently outperformed its benchmark and category peers, making it one of the best investment options for those with a short-term investment horizon.
- Since the fund invests in a mix of short term debt securities and money market instruments, the overall risk exposure of the portfolio is considerably low.
2. Nippon India Liquid Fund
An open-ended debt scheme that aims to generate optimal returns with minimal risk and high liquidity via investment in money market instruments.
| Returns | 1 – Year Returns | 3 – Year Returns |
| Fund | 6.12% | 6.89% |
| Benchmark | 4.21% | 4.22% |
- This fund is suitable for investors who want to invest their emergency/surplus funds with the motive of earning better returns on them as compared to those provided by savings bank accounts.
- As the underlying instruments are highly rated, the risk on investment is almost negligible.
3. Aditya Birla Sun Life Liquid Fund
An open ended debt scheme that aims to generate reasonable returns coupled with high liquidity through investment in high quality debt and money market instruments.
| Returns | 1 – Year Returns | 3 – Year Returns |
| Fund | 6.11% | 6.88% |
| Benchmark | 4.21% | 4.22% |
- This scheme is suitable for investors who want to park their money for a short term and earn decent returns on the same.
- Every security in the portfolio is picked after through research and careful consideration, one that has a high credit rating and bears minimum risk on investment.
4. Axis Liquid Fund
Axis Liquid Fund primarily invests in short -term debt securities such as treasury bills, commercial papers, etc. to generate quality returns for the short term.
| Returns | 1 – Year Returns | 3 – Year Returns |
| Fund | 6.06% | 6.86% |
| Benchmark | 4.21% | 4.22% |
- Axis liquid fund offers instant redemption facility. The investor needs to raise an online request, and the money gets credited to the savings account within a few minutes.
- An investor can redeem upto 90% of the fund units of ₹50,000 on any given day, whichever is lower.
5. Baroda Liquid Fund
An open-ended debt scheme that primarily invests in debt securities with short term maturity, so as to generate reasonable returns .
| Returns | 1 – Year Returns | 3 – Year Returns |
| Fund | 6.04% | 6.88% |
| Benchmark | 4.21% | 4.22% |
- More than 70.56% of the investment portfolio consists of A1+ rated bonds, making it a low-risk investment option for a short term.
- The fund has consistently beaten benchmark and category returns over the years, and is a good investment avenue to earn optimal returns in the short run.
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Advantages of Investing in Liquid Funds
- Since liquid funds invest in debt instruments that offer fixed interest rate, the returns from investment in these are fixed. As the securities mature, an investor gets back the principal amount coupled with the fixed interest that the instruments offer.
- Owing to short term maturities of the underlying invested instruments, liquid funds are highly liquid. One can redeem the invested capital as per his/her convenience. There is no lock-in period on investment in liquid funds.
- A plus point to high liquidity that the fund offers is that there is no applicable exit load when you withdraw the invested capital after 7 days of investment.
- Liquid funds are gaining popularity amongst the retail investors because of their ability to deliver higher returns when compared to investment in Bank Fixed Deposits or Savings Account. Also, their high liquidity makes them a better alternative to Savings Account, given that the returns are comparatively higher for liquid funds. Over the years, liquid funds have delivered returns of more than 7%, that are significantly higher than 4-5% returns offered by Savings Accounts.
How to Invest in Liquid Funds?
There are two ways through which a person can invest in Liquid Funds:
- Online
You can invest in Liquid Funds online seamlessly through online platforms (such as Paisabazaar.com) or directly through the websites of the Asset Management Companies (AMCs), offering the fund.
- Offline
This conventional mode of investment requires an investor to fill a form and submit it at the nearby branch of the fund house, or invest through a broker.
To know more about the investment procedure for mutual funds, visit: How to invest in Mutual Funds?
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FAQS
Q. Are Liquid Funds Risk Free?
A. Not necessarily. Since these funds invest in fixed- income generating securities, wish a short maturity period, they carry low risk on investment. However, the possibility of issuer of debt security defaulting on the final payment always persists.
Q. How are Liquid Funds used in STPs?
A. You can use the invested amount plus accrued interest in Liquid Funds to be systematically transferred to Equity Mutual Funds at periodic intervals. This is known as the Systematic Transfer Plan (STPs).
Q. How soon can I get my money back from my Liquid Fund?
A. Instant redemption facility is available for many liquid funds offered by different AMCs, wherein an amount upto ₹50,000 can be instantly withdrawn, and it reaches the bank account of the investor in a few minutes.
Q. Do Liquid Funds have an exit load?
A. The exit load for Liquid Funds is charged in the following manner, starting from day 1 of the subscription:
Day 1 – 0.0070%
Day 2 – 0.0065%
Day 3 – 0.0060%
Day 4 – 0.0055%
Day 5 – 0.0050%
Day 6 – 0.0045%
Day 7 Onwards – 0.0000%
Q. Do Liquid Funds have a lock-in period?
A. No. There is no lock-in period for Liquid Funds.
Q. What are Money Market Instruments?
A. Money Market is a market for securities with short term maturities upto 1 year. Banks, Non-Banking Financial Companies and acceptance houses make up the money market. It facilitates the transactions for short-term funds, and maintains appropriate liquidity in the market. Liquid Funds into such instruments. To know more about such instruments click here: Money Market Instruments