- The minimum investment used to be Rs. 5000, but it varies from scheme to scheme. It may be as low as Rs. 1000 or as high as Rs. 1 lakh.
- Liquid funds don’t lock money even for a single day.
- Liquid funds usually don’t have any exit load. .
- These funds offer redemption proceeds within 24 hours. If you have submitted redemption request before 3 p.m., the amount will be credited to your bank account by just next day.
- Some of the mutual fund companies are offering new facilities with liquid schemes like ATM for instant withdrawal and transactions through sms.
- Usually, we all keep a good amount of fund in our savings account as liquid money. Though savings account is a must for all of us, it’s better to maintain the emergency fund in a good liquid scheme to avail benefits of good return with almost same safety and liquidity.
- If you have some surplus fund and yet not decided how to use it or where to invest it, park the fund in the liquid fund and withdraw when you have planned for it.
- If any of your investment is ready to cash in and there is a near term cash outlay, invest the proceeds in a liquid fund till the moment you need it.
- Liquid funds are useful if you want to benefit from interest rate movement. If you have some liquid money to invest in debt instruments and you are anticipating upward direction in interest rate, invest the money in liquid fund till the interest rate rises. If invested in liquid funds, your money earns at prevailing market rate. As soon as interest rate increases, withdraw your liquid fund investments and invest at higher rate of interest.
- When you review your portfolio, you may need to relocate some of the assets. In this process liquid funds are a perfect option to park the proceeds whenever your money is idle while reviewing and repositioning.
- You can use liquid schemes through Systematic Transfer Plan and switch transactions of mutual funds. These options will help you move your investments between equity and liquid (& other debt) schemes according to market scenario and personal needs.
- Liquid funds are beneficial during retirement phase. Retired persons prefer to have a handsome amount of money liquid. They can opt for liquid funds according to their comfort level.
Liquid funds attract capital gains tax. If withdrawn before one year, the profit is added to the income of the investor. Tax rate is according to his income tax slab. If withdrawal is made after one year, liquid fund’s taxation gives indexation benefits. Investor has to pay 10% tax without indexation and 20% with indexation on capital gain.