20 Best Liquid Funds in India 2023 – Benefits and Return Calculator
Investing in liquid funds could be a good financial call if you want better returns compared to bank FDs. These are short-term, low-risk debt mutual funds with a maturity duration of up to 91 days. This post lists out 20 best-performing liquid funds of 2022 you could consider investing in.
What are Liquid Funds?
Liquid funds are debt funds that invest in short-term assets with a maturity period of just 91 days. As per SEBI norms, liquid funds are allowed to invest only in debt and money market securities.
These funds invest in fixed-income securities like treasury bills, corporate bonds, Certificates of Deposits (CODs), etc. The primary benefit of these funds is that there’s no lock-in period. You can redeem your investments upon maturity.
If these are the types of funds you want to invest in, take a look at the following list of the 20 best liquid funds in India.
20 Best Liquid Funds in India To Invest in 2023
| Liquid Mutual Fund | AUM (Assets Under Management) as of20 September 2022 | NAV (Net Asset Value ) as of 20 September 2022 | 5 Year Returns | Expense Ratio |
| Navi Liquid Fund – Direct Plan-Growth ** | Rs.122.74 Cr | Rs. 2,385.83 | 5.24% | 0.15% |
| Quant Liquid Fund – Direct Plan-Growth | Rs. 790.37 Cr | Rs. 35.04 | 5.89% | 0.29% |
| IDBI Liquid Fund- Direct Plan-Growth | Rs.592.01 Cr | Rs. 2,341.16 | 5.44% | 0.13% |
| Mahindra Manulife Liquid Fund-Direct Plan- Growth | Rs. 673.92 Cr | Rs. 1,414.80 | 5.43% | 0.14% |
| Franklin India Liquid Fund – Super Institutional – Direct Plan – Growth | Rs. 1529.81 Cr | Rs. 3268.10 | 5.42% | 0.12% |
| Edelweiss Liquid Fund- Direct Plan Growth | Rs.1,461.55 Cr | Rs. 2,806.55 | 5.41% | 0.15% |
| Aditya Birla Sun Life Liquid Fund -Direct Plan – Growth | Rs. 42493.34 Cr | Rs. 350.57 | 5.40% | 0.21% |
| PGIM India Liquid Fund- Direct Plan -Growth | Rs. 599.64 Cr | Rs. 283.45 | 5.39% | 0.13% |
| Nippon India Liquid Fund Direct Plan- Growth | Rs.27,188.65 Cr | Rs. 5,319.92 | 5.39% | 0.18% |
| Baroda BNP Paribas Liquid Fund | Rs. 6,431.97 Cr | Rs. 2,506.93 | 5.38% | 0.19% |
| LIC MF Liquid Fund- Direct Plan-Growth | Rs. 5,672.99 Cr | Rs. 3,949.74 | 5.36% | 0.17% |
| Tata Liquid Fund Direct Plan – Growth | Rs. 14,144.42 Cr | Rs. 3,432.09 | 5.36% | 0.21% |
| Axis Liquid Fund -Direct Plan-Growth | Rs.. 29262.95 Cr | Rs.2415.65 | 5.36% | 0.15% |
| UTI Liquid Cash Plan-Direct Plan- Growth | Rs. 32,857.36 Cr | Rs. 3,563.81 | 5.35% | 0.14% |
| Mirae Asset Cash Management Fund-Direct Plan-Growth | Rs. 5127.65 Cr | Rs. 2296.12 | 5.34% | 0.17% |
| ICICI Prudential Liquid Fund-Direct Plan-Growth | Rs.45,873.62 Cr | Rs. 321.97 | 5.34% | 0.20% |
| DSP Liquidity Fund-Direct Plan -Growth | Rs. 12,226.19 Cr | Rs. 3109.10 | 5.32% | 0.15% |
| HSBC Cash Fund-Direct Plan-Growth | Rs. 3749.78 Cr | Rs. 2165.96 | 5.32% | 0.12% |
| Bank of India Liquid Fund-Direct Plan-Growth | Rs. 377.65 Cr | Rs. 2503.06 | 5.30% | 0.15% |
| L&T Liquid Fund-Direct Plan-Growth | Rs. 7782.50 Cr | Rs. 2978.11 | 5.30% | 0.15% |
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5 Benefits of Investing in Liquid Funds
Here are top 5 benefits of investing in liquid funds:
1. Lower Risk
Liquid funds are low-risk debt funds that offer steady returns and safety to the principal investment. Hence, the fund’s value remains more or less constant during market fluctuations.
2. Low Cost
Unlike other debt funds, these funds are not managed actively. Therefore, the expense ratios of the best liquid funds are well below 1%. This low-cost fund makes it possible for you to receive maximum returns.
3. Flexible Holding Period
These funds come with a flexible holding period making it easier for investors to enter or exit an investment while earning high returns. In addition, most fund houses do not charge any exit load for these funds.
4. Fast Redemption Process
Unlike most mutual funds, liquid funds’ redemption is completed within 24 hours of your request.
5. Better Investment Compared to FDs
Investing in liquid funds generates about 4%-8% higher returns. Which is considerably higher compared to traditional bank savings. Moreover, the exit load is not as high as FDs.
Who should Invest in Liquid Funds?
Liquid funds are suitable for:
- Individuals with surplus cash who are looking to invest for the short-term can consider investing in liquid funds
- Investors who are risk-averse and who are looking for investing in high-liquidity funds can also invest in liquid funds
- Individuals who wish to opt for liquid funds through a Systematic Transfer Plan (STP) can funnel their money into equity funds through this plan. This investment mode offers two benefits- substantial returns and helps in averaging down the investment cost in equity
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How to Choose the Best Liquid Fund to Invest in?
Liquid funds are short term investment plans that serve the purpose of parking one’s excess funds for a short investment horizon. There are several liquid funds operating in the market which have the potential to generate stable returns. Here are some aspects that you should keep in mind before investing in a liquid fund:
- Make sure to check the credit rating of the debt instruments that a particular liquid fund invests in.Consider avoiding those funds which invest your money in low rated instruments as there are higher chances of default.
- Another thing that you should keep in mind are the various charges that a mutual fund scheme levies, such as expense ratio, exit loads, etc. As these charges directly reduce the profitability, you may choose those funds which come with lower costs.
- Liquid funds function as an alternative investment option to bank deposits. You should carefully analyse prevailing bank deposit interest and compare the same with interest received on liquid funds. You should consider choosing a liquid fund which provides a relatively higher interest than bank deposits.
- Diversification reduces risk present in an investment portfolio. Best liquid funds invest their corpus in instruments with varying maturities, belonging to different sectors or themes and having diverse credit profiles. It reduces risks and ensures greater stability in the investment basket.
Things to Consider before Investing in Liquid Funds
As an investor, you should stay well-informed before taking any investment options:
1. Returns
Before investing in liquid funds, consider the expected returns. It will help you decide where to park your money and provide an estimate of the returns you will receive.
2. Expense Ratio
Liquid funds are managed by fund managers appointed by the fund houses. An annual fee is charged to the investors to manage funds, which is known as the expense ratio. Lower the expense ratio, the higher share of returns you will receive.
3. Financial Goal
Investing in liquid funds is great for those who want to create an emergency fund. High liquidity enables the investor to redeem the returns quickly in case of an emergency.
4. Risk
Liquid funds are not completely risk-free. However, the NAV tends to remain stable and given the short maturity period, a change in credit ratings of the underlying securities does not impact the liquid funds to a great extent.
What are the Risks in Liquid Funds?
Just like any other mutual fund, liquid funds also have a certain degree of risk. Although the Net Asset Value (NAV) of liquid funds remains stable, the NAV can get affected if the credit ratings of the underlying securities change.
However, because liquid funds have a short maturity period and invest in debt securities, the risk involved is relatively lower compared to equity funds.
How are Liquid Funds Taxed?
The dividends you earn from liquid funds will be added to your income and taxed as per the tax rate slabs. If you are in the tax slab of 20%, you will be taxed at the rate of 20% and if you are in the 30% tax slab, you will be taxed at the rate of 30%.
Final Words
It’s a great way to start generating wealth by investing in liquid funds. They are less risky, good for risk-averse investors and provide higher returns compared to the bank savings accounts and fixed deposits. Check your financial goals, expense ratio and the funds part performance before you invest.
FAQs
Ans: No, you do not need to pay tax on dividend income from liquid mutual funds.
Ans: Both liquid funds and Fixed Deposits generate similar returns. However, the former comes without a lock-in period and does not charge a penalty for withdrawing money after 7 days of investment.
Ans: Generally, they do not have an exit load if you redeem units after 7 days of investment.
Ans: No, because liquid funds invest in high-quality securities for a short span, it does not affect its NAV.
Ans: The chances of financial losses are very less considering it invests in debt instruments for a short time.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
