In my earlier posts, I listed my top equity and ELSS funds to invest in 2017. In this post, I will try to give my Top 5 Best Liquid Mutual Funds in India in 2017.
Liquid fund is a type mutual fund that invests money in Bank Certificate of Deposits, Bank Fixed Deposits, Treasury Bills, Bill Rediscounting, Commercial Paper, Collateralised Borrowing & Lending Obligation and other debt securities with maturities up to 91 days.
The NAV of the funds is computed for 365 days, unlike other debt mutual funds where NAV is computed for business days only.
In the case of other debt funds for purchase applications received within the cut-off time (3.00 P.M) having the value up to Rs.2 lakhs, the NAV as at the end of the day of the application is applied. For applications of more than Rs.2 lakhs, within the cut-off time (i.e. 3.00 P.M.) the allotment of units is subject to realisation of funds.
However, in the case of liquid funds, for all transactions (irrespective of the value of investment) received within the cut-off time (i.e. up to 2.00 P.M.) where money is also realised within the cut-off time, the units are allotted as per previous day NAV.
Let us say if a purchase transaction in a liquid fund is submitted on Monday before 2.00 P.M. and amount is also realised by 2.00 P.M. on Monday, then NAV of Sunday is applicable.
Similarly, when redemption request is submitted before cut-off time on Friday, then applicable NAV for redemption is of Sunday, i.e. the day before the next business day. This means, your investments generate returns for every single day of investment.
The popular theory is that park your IDLE money in liquid funds. However, you must understand for how long the money be IDLE. Based on that time horizon you have to take a call. Idle money of one day is different than idle money of 1 year.
Few suggest that we must use liquid funds to keep our emergency fund. But in my view, liquid funds or not so liquid in nature. Because if you request for redemption (before cut-off time), then the money will be credited on the next working day.
Few funds offer you the card for withdrawal but there are certain withdrawal restrictions.
Hence, my suggestion is to park your PART of emergency fund in liquid funds rather than parking all 100% into liquid funds.
However, the best idea to utilise liquid funds is to invest for your short term goals. You can expect a better return than your savings account (4%). Some funds generated around 8% to 9% and some funds around 5%. But we assume liquid funds generate higher than your savings account.
As the liquid funds invest in low maturity papers, the volatility is very less. Also, they invest in high credit rated papers (higher than AA rated), so the default risk is also very minimal.
Hence, you may say highest safety, more expectation than your savings account are the primary reasons for investing in liquid funds.
Liquid funds are treated like other debt funds for taxation purpose. If you hold the fund for less than 3 years, then it is considered as Short Term Capital Gain (STCG). However, if you are holding for more than 3 years, then it is considered as Long Term Capital Gain (LTCG).
Short Term Capital Gain Tax for Debt Funds-It will be taxed as per your tax slab.
Long Term Capital Gain Tax For Debt Funds-It will be taxed at 20% with indexation benefit.
I will try to explain the same from below pictures.
Hope you got the clarity about the taxation classification. Now let us understand the rate of tax.
Refer the complete Tax Benefit of Mutual Funds in my earlier post “Mutual Fund Taxation FY 2017-18 and Capital Gain Tax Rates“.
As I said above, all liquid funds invest in debt papers which mature in less than 91 days. Hence, I don’t think there are sure short method to say that Fund A is best than Fund B. However, with certain other criteria we can again go deep and shortlist the fund.
Again, the best way I suggest to invest in the liquid fund is in same AMCs funds where you already investing in equity funds or you already have online access or folio number already generated.
But as I said above, I shortlist the liquid funds based on below criteria.
# Average Maturity–
I select the fund which shows higher average maturity. All liquid funds invest in the papers which mature within 91 days. Lower the maturity means the fund is holding more cash which in return gives me less return. Hence, I avoid the fund which show lower average maturity.
For example, SBI Magnum Insta Cash Fund’s average maturity is 0.003 means one day. Hence, it indicates that the fund is holding the cash highly. I will not touch such funds.
# Average Credit Quality–
I will select the funds which hold the papers not less than AAA. Lower to AAA rating is AA. Few funds shows such ratings. They may be exposed to some low rated papers. Hence, I will not select those funds.
We look at liquid funds mainly for safety than anything else. Also, our expectation from such funds should be always to get more than savings account returns. Hence, I don’t think 1% or less than 1% returns matters to us.
Hence, I overlook the return part and consider only on quality and safety.
Based on above assumptions, I have shortlisted Top 5 Best Liquid Mutual Funds in India in 2017. Remember that this is not the FINAL best liquid funds. Also, as I pointed already, my priority is for highest safety than return. Hence, even though few funds like Escorts Escorts Liquid Fund performing consistently and with a good return than the fund I listed, I neglected such funds. Two reasons for that may be. One is these funds holding average credit rating as AA and the second thing I may be biased towards fund houses.
Below is the list of Top 5 Best Liquid Mutual Funds in India in 2017 I have selected.
If you find the ratings of these funds in valueresearch, then you find that all these are rated less than 5 or 4 rated. The reason is, the 5 and 4 star rated funds average credit rating is AA, which I completely avoided for selection.
Hope my above methodology and the funds selection will help you in short listing the Top 5 Best Liquid Mutual Funds in India in 2017.
Refer my earlier posts related to Mutual Fund Investment in 2017-18
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View Comments
Sir
would you pl suggest Best Liquid MF 2018?
Is it not the appropriate period to evaluate? pl
I have CICI Pru Blue Chip Regular, SBI Blue Chip Regular, L&T EMERGING BUSINESS FUND being invested thru SIP with one DP, NOw I started direct SIP simultaneously in another DP for Invesco Midcap, Axis Focused 25 and Kotak India EQ Contra, I am looking to put money lumpsum in either ABSL money manager or ICICI Pru Liquid in direct plan.. DO you see my allocation correct ?
Dear Anand,
Without knowing the reasons of the investment and financial goal details how can I guide you?
Sir, I want to keep my emergency fund amount in ICICI prudential liquid plan. but, there different options like
1. ICICI Prudential Liquid - Growth
2. ICICI Prudential Liquid - Direct Plan - Growth
3. ICICI Prudential Liquid Institutional Plan - Growth
4. ICICI Prudential Liquid Plan Retail Growth
So, please tell me which one is best.
second query is, How much percentage of emergency fund is to be kept in liquid fund?
Awaiting for your reply
Dear Sachin,
First understand the meaning of each of these options. If you still have doubts, then I will guide you.
Hi Basavaraj,
Really an informative article on liquid funds.
As a part of the Emergency Fund, I am planning to park some % of total amount into one of the Liquid Fund in a lump sum( rather than keeping all the above fund in a savings account and I was want to maintain liquidity).
Would you suggest going for the liquid fund for this purpose a better option or are there any alternatives which would provide similar flexibility?
After reading above article and few other ones , there are possibilities that liquid fund might give negative returns.
Please advise if the liquid fund would be suitable or any other instrument, and provide some evaluation on Franklin India Ultra-Short Bond Fund.
Thanks.
Balaji-For keeping an emergency fund, I usually suggest like below.
1/3 in Savings account, 1/3 in eFDs and another 1/3 in Liquid Funds. Liquid Funds may give negative returns if you do not understand the underlying portfolio risk. Refer my post related to debt funds "Top and Best Debt Mutual Funds to invest in 2018".
Don't you think , when safety is so important , in your short listing process you also look at the portfolio of funds and pick funds with greater % of T-Bills compared to CPs (Commercial Papers ) .. especially after the Taurus Fund's experience
Think lesser the % of CPs in AUM and greater the % of T-Bills is a very important criteria to follow , in shortlisting of Liquid Funds
Nagendra-Treasury bills riskier that CPs?
No...That is why is said "Think lesser the % of CPs in AUM and greater the % of T-Bills is a very important criteria to follow , in shortlisting of Liquid Funds"
isn't it ? ...is it so in all the funds you have shortlisted ?... I'am asking
Nagendra-I am asking you again what is the risk difference between CPs and T Bills (when it comes to credit quality, modified duration and average maturity)?
My Basic understanding is T Bills are government bonds , with no default risk , unlike CPs which can default despite the ratings ... as rating agency in India will never take the blame for defaults ... That is the level of my knowledge
Nagendra-Commercial Papers may be unsecured than T Bills. But in case Liquid Funds, where the maturity of such Commercial papers are very less, the risk is also minimal or you may say NIL. Risk factor we have to consider when the fund invests in CPs of longer maturity.
OK. Thank you
I have some amount parked in my savings account (keeping aside some emergency fund )which I will be needing in 15-18 months from now .
So how do you suggest me to invest it in liquid funds as in lump sum or through SIP .
Thanks.
Anshu-In Lump Sum.
Hello Basu,
I am really in confused state after investing in Regular plans with the help of distributors . My monthly SIP was abut 1 lakh/month for last 2 years and now I would like to switch to Direct plans as it gives better returns. I was reading many posts in internet and most of them are showing and suggesting to switch to DIRECT instead of Regular plans. What should i do now ? all my SIP's have given me decent returns for last 2 years and switching at this time to the same fund but direct will start all over again. Will this deviate from my financial goals in long run?
and also some of the stocks are over valued in the recent past and the sensex/nifty going beyond 26 k and 11 k respectively, will this impact my switch?
Please advise
Mrityunjayagouda-In what sense it is again the START ALL OVER AGAIN and how it deviates your financial goals when you are just moving from regular to direct? The market will treat your current regular investment and future direct investment in the same way without bothering whether you are in regular or direct. I don't know what bothers you. Just go ahead.
Hi Basavaraj - Sorry for the delayed response.
What i mean to say is .. if i switch from Regular to Direct plan now, the date of investment will set to current date(this may be today's date). This may rest my return or XIRR % start from 0(Zero) to whatever i get in he future.
Another thing is the Sensex is really going crazy last week/today and too much of fluctuations in my MF values, is it right time for me to switch over to some debt fund ? if yes then can you advise few where in i can get some decent returns.? and low risk ?
Mrityunjagouda-Assume you invested Rs.100 in the fund ABC and the current value is Rs.120. Now assume that you want to move to same fund, then its like you redeem and reinvest in same fund with that Rs.120. Then where comes the question of loss of gain? In such situation, XIRR return has to be calculated from the initial investment but not from the switch.
If you are long term investors (5+ years) and did proper asset allocation, then you no need to worry.
I appreciate your quick response on queries. I am still waiting for 2nd part of my query. I will paste the same here again for your reference
Another thing is the Sensex is really going crazy last week/today and too much of fluctuations in my MF values, is it right time for me to switch over to some debt fund ? if yes then can you advise few where in i can get some decent returns.? and low risk ?
Mrityunjaygouda-If your goal is long term (5+ years) and you did proper asset allocation, then why you have to worry about such news based events? If you can't digest such volatility (which is part and parcel of equity market), then first learn how to handle risk before starting investment.
Hi Basavaraj,
Have few questions
1.I plan to start a new SIP of Rs 5k/month for more more 5 years in a large cap Fund, either in SBI blue chip fund or Mirae Asset India Opportunities fund. My question is if i invest 5k on a particular day of the month it takes the NAV of date of investment, rest of the month there will be variations in the NAV. Is it wise thinking to break 5k in to 4 pieces and invest Rs 1250/week ? to gain the benefit of market fluctuations? Please advise
2.Do i really need to bother about CRISL rating for each fund? On what basis these ratings will be give? Should i look forward only for the top rated Funds by crisil?
Mrityunjaygouda-1) There are enough studies which showed that no such things work out. I know that you want to average it. But to be frank, there is no such huge difference.
2) Each portal follows it's own method to arrive at a rating. Just neglect them.
Hi sir,
U said that we have to invest in direct funds know so may I know the difference b/w a direct fund and a normal fund
Ex: whats the difference between SBI BLUECHIP FUND(G) and SBI BLUECHIP DIRECT FUND(G)
THANKS IN ADVANCE
Praveen-Refer my latest post "Best Direct Mutual Funds Platforms in India to invest online".
Thanks for a reply
I have read what u have suggested and I am a new investor so I am planning to invest an SIP of 6K in 2 different funds like SBI BLUECHIP growth and Birla sun life was that a correct decision or I need to change please help me
Awaiting for ur suggestion.
Praveen-It is hard for me to suggest anything BLINDLY without knowing goal details, time horizon and exact fund names.
Time horizon would be 5 years from now goal will b for future studies for about 4-5L so suggest me some good funds.
Praveen-Use Ultra Short Term Debt Fund or Short Term Debt Funds.
Hi Basu
I am planning to invest 20000 every month for my annual expenditure such as premium of insurance, kids school fees and etc.
I was planning to put money in liquid funds but I am confused now between RD and Liquid Fund. RD for 9 months in ICICI gives you 6.25 % Returns which is guaranteed in contrast to Liquid Funds which can give anywhere between 6-8 % but its variable.
I guess both will attract similar taxes on returns.
I may need money periodically or every 2-3 Months.
What will be best strategy ? Cash ? Liquid Funds ? RD ? FD?
Sandeep-You can't book an RD for 2-3 months. Hence, better to use Liquid Funds. Regarding FDs, I don't think there is a much difference of returns between Liquid Funds and FDs. However, if you want to liquidate FD, then there will be a penalty clause. This penalty is not there with Liquid funds.
Pranam sir.
I want to invest 1 lakh for 10 yrs or above.I have also a SBI bluechip fund rs 3000/ (monthly) for 10 yrs.
So PSE suggest in which fund I invest to get a better return and security .
Debendra-Refer my post "Top 10 Best SIP Mutual Funds to invest in India in 2018".
Sir I want to invest in mutual funds but I dont know any thing about it and i dont have large amount to invest plz help me to invest in short term plan.
Chandan-Refer my latest post "Top 10 Best SIP Mutual Funds to invest in India in 2018".