Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Exit Badla. Enter Liquid Funds. - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jun 25, 2001

    Exit Badla. Enter Liquid Funds.

    Investors looking for an instrument to park their funds for the short term (about 2-3 months) should consider liquid funds.

    Liquid funds are targeted at investors who have some cash that they would like to park for a few weeks or even months until they finally decide to expend that money. Liquid funds are ideally suited for investors who have an investment horizon of upto 2-3 months, stretching up to 6 months on the outer. Remaining in a liquid fund for more than that means that your money is underperforming, as liquid funds are less attractive over a longer time-frame vis-ŗ-vis other investment options (income/gilt funds)

    Target audience
    Liquid or money market funds are typically targeted at the high networth individuals (HNIs) and corporates with a 1-6 month investment horizon are the target audience for such a fund. Typically, equity investors who canít find adequate investment opportunities in the current market and are waiting for the right time, or badla financiers who will have to close shop from July 2, 2001, or for that matter a typical fixed depositor who wants higher returns and liquidity, are all ideal candidates for liquid/money market funds.

    JM LIQUID G 18.9 0.6% 1.8% 8.8% 11.3%
    ALLIANCE LIQ RG 16.8 0.5% 1.7% 8.4% 12.8%
    TATA LIQUID APP 12.4 0.3% 0.9% 3.8% 7.8%
    DUNDEE LIQ. 10.8 0.2% 0.9% 5.6% 11.2%
    KP TREA MGMT G 1,325.1 0.2% 0.7% 4.7% 9.3%
    ZURICH LIQUIDITY G 11.6 0.2% 0.7% 4.8% 9.6%
    HDFC LIQUID G 10.6 0.2% 0.7% 4.6% 9.7%
    BIRLA CASH G 14.4 0.2% 0.7% 4.3% 9.5%
    HDFC LIQUID D 10.0 0.2% 0.7% 3.8% 7.9%
    RELIANCE LIQ 10.1 0.2% 0.6% 0.0% 7.9%

    How liquid funds work?
    First lets understand how liquid funds work. The initial investment amount can run into anything over Rs 100,000. however, there are some fund houses (Kothari Pioneer MF, Stanchart MF) that have lower entry barriers targeting the retail investor.

    Liquid funds invest in money market instruments like call money, certificate of deposits (CDs), commercial paper (CP) and treasury bills (T-bills). All these instruments are short term in nature, i.e. they mature within 12 months.

    Unlike its counterparts in the mutual fund industry liquid funds do not have a load, neither on the entry nor on exit. A load on a liquid fund would make it very unattractive and investment in it would defeat the objective of maximisation of returns.

    Tax efficiency
    Income distribution from liquid funds (in the form of dividends) is tax free in the hands of investors. On the other hand, returns from FDs are taxable and if the FD amount is Rs 5,000 or above then tax is deducted at source (TDS).

    Dundee Liquidity Fund's weekly dividend declaration
    Dividend Date Div. (%) Div. (Rs) Ann. div. (%) Ann. div. (Rs)
    1-Jun-01 0.13% 0.013 6.44% 0.644
    8-Jun-2001 0.14% 0.014 7.30% 0.730
    15-Jun-2001 0.16% 0.016 8.34% 0.834
    22-Jun-2001 0.16% 0.016 8.34% 0.834

    Templeton Liquid Fund's weekly dividend declaration
    Dividend Date Div. (%) Div. (Rs) Ann. div. (%) Ann. div. (Rs)
    27-May-01 0.13% 0.013 7.01% 0.700
    3-Jun-2001 0.14% 0.014 7.52% 0.750
    10-Jun-2001 0.15% 0.015 7.93% 0.793
    17-Jun-2001 0.15% 0.015 7.73% 0.773
    We have taken two liquid funds to drive home our point (the samples are only indicative). Annualised dividend in both cases exceeds 7%, which is very good, considering that it is tax-free and allows investors to exit the fund whenever he chooses to.

    To any investor, especially high networth individuals/corporates the biggest negative in investing in a FD is the liquidity constraint. Lower returns on FDs is a secondary issue for these investors when you look at the inherent liquidity constraints with an FD.

    Simply the best
    Any way you look at it, liquid funds are definitely a superior parking product. On all critical criteria - liquidity, tax efficiency and returns, it scores over other comparable investment avenues. For an investor who looks at these factors before investing, liquid funds are clearly the best.



    Equitymaster requests your view! Post a comment on " Exit Badla. Enter Liquid Funds.". Click here!


    More Views on News

    The Right Financial Advisor Is Around the Corner (Outside View)

    Mar 10, 2016

    An opportunity to find an impeccably trustworthy and competent financial guardian is in the offing.

    Why financial planning should be dull and boring (Mutual Fund Corner)

    Feb 29, 2016

    Most financial planners come out as whiz kids who throw around financial jargon. But financial planning can be actually easy, provided one follows a disciplined approach.

    What Are E-Wallets And How To Use Them (Mutual Fund Corner)

    Feb 12, 2016

    PersonalFN highlights the benefits of parking a portion of your expenses in e-wallets and using them efficiently.

    Is Consumption Boom Over In India? (Mutual Fund Corner)

    Feb 2, 2016

    Mutual funds take a bearish call on the FMCG sector. The sector has started playing out due to a combination of slower growth and expensive valuations.

    How to Find a Saint Amongst Sinners? (Mutual Fund Corner)

    Feb 1, 2016

    Ethical practices help build long lasting relationships, and healthy long-term business relationships are often mutually rewarding. But PersonalFN is of the view that the financial services industry in India seems to have forgotten this.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms