Planning short term investment? Go for Liquid Funds

Generally people prefer banks for their regular savings. Banks provides very low interest rate on these savings although some banks pay more interest rate but they requires higher minimum balance for example 1 lakh or above. Liquid Mutual Funds are more appropriate solution to get rid of this problem.

Liquid funds are short-term investment vehicle which invests in money market instruments like treasury bills, certificates of deposit and commercial papers that holds less risk. An investor can invest his money for few days or a month. Liquid fund gives privilege of any time liquidity.

Benefits of Liquid Funds

• Lock-in period is zero.
• It can be redeemed within 1 business day.
• Gives high returns over FD and saving account.
• Mostly invests in the high credit rating instruments, hence less risky.
• Higher output with liquidity and taxation benefit makes it more effective.
• Absence of entry-exit load.
• diversification of investment.

Choosing a perfect Liquid Fund

When you are thinking to invest in a liquid mutual funds in India, previous returns should not be the only thing you should look at. You should also consider factors like financial market access, credit quality of security, balance sheet structure, the size of funds etc., previous returns should not be the only thing you should look at. You should also consider factors like financial market access, credit quality of security, balance sheet structure, the size of funds etc. can invest in this with the minimal amount of Rs. 5000. Despite the facts stated above the client should be to commence his/her investment at the correct time so that maximum profit is obtained out of the hard-earned money.

Different plans under Liquid Fund

Liquid funds facilitate its investors by providing different plans. An individual can select any plan according to their need. For example, daily dividend plan, weekly dividend plan, monthly dividend plan and growth plans. Dividend plans mean that a part of your profit is cut from your NAV and the remaining amount is given to you. No dividend is declared in the case of growth plan and the amount investor earns as a profit is reinvested along with his capital to earn more profit.

Tax liability for Liquid funds

If the investor gets any profit by buying or selling off its units it will be taxable in under capital gain. Short term gains will be added in your taxable income if it is held for less than 1 year. To get away from this there is an effective way that is divided reinvestment. Dividend reinvested in this will be considered as a new investment. Funds have to pay Dividend Distribution Tax (DDT) before distribution of dividend which is 28.3250 % at per current tax laws. This tax is paid by the fund itself hence the dividend paid to investor is tax-free in his hand.

Dishika is well-versed with the ups and downs of the financial market and has published articles on mutual fund and SIP. She is associated with MySIPonline.com, which is an AMFI registered mutual fund company.