Earn Higher Returns With Liquid Funds

Fixed deposit interest rates are falling. If you’re looking for alternatives to fixed deposits – which is to say, you’re looking for conservative returns along with safety of capital – you can turn to liquid mutual funds. Here’s a quick look.

Introduction

When you buy liquid mutual funds, your money is being invested in low-risk and short term debt securities. This means corporate debt, fixed deposits, and government treasury bills whose tenures are up to 91 days. You can enter and exit liquid funds easily. There’s very little risk, and you earn returns similar to FDs. 

Who Sells Them?

Just as any other variant of mutual funds, liquid funds are sold by asset management companies (AMCs). Most AMCs have a liquid fund scheme that investors can avail at any point.

How To Buy

You can use mutual fund comparison websites to finalise the liquid fund you want to choose. Then, you can buy it online or offline. Online, by registering with the AMC website and making the purchase digitally. This takes just a few minutes. Offline, by walking into the branch office with the KYC documents and cheque. You can also buy them through distributors, aggregators, agents etc.

Better Than FDs?

On all bank deposits, your interest earnings are combined with your income and taxed as per your slab. So a 6.50% FD earns you 4.55% if you’re in the 30% slab. Mutual funds, however, are taxed only when you redeem them. This makes them more tax-efficient.

Returns

As per the CRISIL AMFI Liquid Fund Performance Index for June 2017, this fund category as a whole has provided a CAGR of 6.83% in the preceding one year, 7.88% in the preceding three years, 8.37% in five, and 7.76% in ten.

Other Benefits?

Most mutual funds have exit loads – you’re charged for premature redemption. But liquid funds don’t. You can exit your liquid fund investment at any point, and the cash is deposited to your linked account usually in one business day. 

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