Quick Answer: How Does Liquid Fund Work?

What are the liquid funds?

Definition: Liquid funds are a type of mutual funds that invest in securities with a residual maturity of up to 91 days.

Assets invested are not tied up for a long time as liquid funds do not have a lock-in period.

An investor looking for better returns prefers investing in a liquid fund over fixed deposit..

Is Fd a liquid asset?

RE: Are FD’s Considered as liquid assets? FDs (that can be withdrawn anytime even if they haven’t matured) = liquid.

How do I redeem my liquid fund?

But if you have a balance of Rs 50000 in your liquid fund, then you can withdraw a maximum Rs 45000. You can opt for instant redemption facility on your fund house’s website or app. Make sure you chose ‘instant redemption option. ‘ Otherwise, you will get your money after a day.

Is Liquid Fund better than FD?

Liquid funds invest in fixed-income instruments and endeavor to offer capital protection and liquidity to investors. Hence, they invest in high-quality instruments only. This makes them safer than other mutual funds. … While these funds don’t assure any returns, they tend to offer better returns than FDs.

Can I withdraw money from liquid fund?

You can withdraw your money instantly, anytime*. In fact, up to 90% of your balance in the liquid fund upto a daily limit of Rs 50,000 will be credited within a few minutes and the balance will be credited into your bank account within 2 business days.

Is there any risk in liquid funds?

Liquid funds carry no credit risk, no liquidity risk.

Can liquid funds give negative returns?

On an average, liquid funds have delivered 0% over the past week, according to data from Value Research and many large liquid funds have actually delivered negative returns. … These are categories that normally do not deliver negative returns, even over short time periods and are considered extremely low risk.

How long does it take to redeem Liquid Fund?

It takes around 1-3 working days to get money in your bank when you redeem from mutual funds. For Liquid Funds, it takes 1 working day to get back money. There are some instant redemption schemes where you get money immediately. For Debt Funds, it takes 2 working days.

Can liquid funds default?

Although liquid funds are not entirely risk-free, however, they are low risk-low returns instruments. … When discussing credit risk, it refers to the likelihood of default in the payment of interest and principal by the issuer of the debt instrument.

Are liquid funds safe investment?

Liquid funds are high liquidity open-ended income schemes that invest in debt and money market instruments such as government securities, treasury bills and call money among others. These instruments have a maximum maturity period of 91 days and are considered safe because they mitigate interest rate volatility risk.

How do I withdraw from liquid mutual funds?

To make a withdrawal, you will need to put in a redemption request. In order to arrive at the number of units to be cancelled in line with the redemption request, you’ll need to check the applicability of the net asset value (NAV).

How much tax do you pay on a liquid fund?

If the liquid fund investment is held for more than three years, it is subject to long term capital gains which is taxable at 20% with indexation. If the investment is held for three years or less than that, the capital gain is taxed at the marginal (highest) tax slab rate applicable to the assessee.

What is the difference between debt fund and liquid fund?

Debt funds refer to the category of mutual funds that invest in a pool of debt oriented or fixed income securities. … Liquid funds on the other hand are essentially a subset of debt funds. These funds invest in securities that have a maturity profile of a maximum of 91 days.

Can I redeem mutual fund on Sunday?

While the equity market will remain open on Saturday, it will be a non-business day for mutual funds (MFs). This means investors will not be able to purchase or redeem MF units on Budget day. … Saturdays and Sundays are usually non-business days for MFs.

What is benefit of liquid fund?

Liquid funds are categorised as low risk products from liquidity and interest rate risk perspective. This is because they hold very short term instruments where the chances of interest rate fluctuations are less. Returns on these schemes fluctuate much less compared to other debt funds.

Are liquid funds tax free?

Taxation on Liquid Funds Investors earn dividends and capital gains from liquid funds. Investors do not pay any tax on dividend income from mutual funds. In case an investor earns a capital gain- by redeeming the units of the fund at a price higher than his or her purchase price- then the capital gains are taxable.

Is it good time to invest in liquid funds?

Liquid funds have no lock-in or very low lock-in period. The interest rate of liquid mutual funds is the lowest among all short-term investments due to low maturity period. … Liquid funds are a perfect solution for investors who wish to park their idle cash for a short duration without the risk of Capital Loss.

Which liquid fund is best?

Top 10 Liquid Mutual FundsFund NameCategoryFund Size(in Cr)LIC MF Liquid FundDebt₹7,836ICICI Prudential Liquid FundDebt₹44,170PGIM India Insta Cash FundDebt₹670Tata Liquid FundDebt₹15,55612 more rows

Which investment is better than FD?

Consider this hand-picked list of Debt Mutual Fund Schemes from Money Market, Short-term and Banking & PSU Funds. By investing FD-like instruments from high quality companies, these Funds can offer potential to earn better than FD returns if you are looking for low-risk investment option.

How is Nippon India Liquid Fund?

Liquid Fund : Fund has 91.26% investment in Debt of which 44.17% in Government securities, 47.09% in funds invested in very low risk securities.. Suitable For : Investors who want to invest for very short term and are looking for alternative to bank accounts/deposits.