What can be a better, safer, and more flexible option for short-term surplus funds than liquid mutual funds? Investors seeking the same are often redirected to it in order to gain stability, liquidity, and consistent returns. Liquid mutual funds primarily invest in debt and money market instruments with maturities of up to 91 days, ensuring low volatility. Their easy accessibility and predictable performance make them popular among both novice and seasoned investors.
If you’re looking for the best liquid mutual funds to invest in 2024, this guide will help you identify options offering competitive returns with minimal risk.
What Are Liquid Mutual Funds?
Liquid mutual funds are open-ended debt schemes focusing on short-term investment options like treasury bills, commercial papers, and certificates of deposit. The short maturity period ensures these funds carry lower interest rate risks, making them a safer choice compared to other mutual fund categories.
Key benefits of liquid funds include:
- High liquidity for easy redemption.
- Low risk due to short-term investments.
- Better returns compared to savings accounts.
Why Choose Liquid Mutual Funds in 2024?
Liquid funds deliver the perfect blend of safety and returns regardless of your financial objectives, be it parking your funds for a few days or months. Being unparalleled for their liquidity, stable returns, and ease of access, such funds are ideal for managing surplus cash efficiently.
Investing in liquid funds offers several advantages that cater to modern investors’ needs:
- Safety
Liquid funds primarily invest in high-rated debt instruments, such as treasury bills and commercial papers, minimizing the risk of default. The short maturity period of these securities further ensures stability and predictable returns.
- Flexibility
One of the key highlights of liquid funds is their easy redemption process, allowing investors to access their money within 24 hours. This makes them an excellent choice for building an emergency fund or meeting sudden financial needs.
- Returns
Liquid funds consistently offer better returns than traditional savings accounts and fixed deposits, making them a lucrative alternative for short-term financial goals. Their ability to generate higher yields without exposing investors to significant risk is a major advantage.
- Tax Efficiency
The gains from liquid funds are taxed based on the investor’s income slab, making them straightforward for short-term use. Additionally, for investments held over three years, indexation benefits help reduce long-term capital gains tax, increasing post-tax returns.
Elaborating The Role of Liquid Funds in Your Portfolio
Liquid mutual funds serve as a cornerstone of any diversified investment portfolio. They act as a buffer, providing quick access to cash without compromising returns. For individuals aiming to park idle money temporarily or businesses seeking efficient cash management solutions, liquid funds are indispensable.
Here’s a closer look at their pivotal roles:
- Emergency Fund Support
Liquid funds provide instant access to cash, typically within one business day, making them an ideal choice for building or maintaining an emergency fund. This ensures you have liquidity without needing to dip into long-term investments during unforeseen financial crises.
- Idle Money Optimization
Instead of leaving surplus money in a savings account, investing in liquid funds helps maximize returns on idle funds. These funds offer significantly higher yields while maintaining low-risk exposure, making them a smarter alternative.
- Short-Term Parking for Surplus Cash
Businesses and individuals can use liquid funds to park excess cash for short durations without locking it away. This is especially beneficial for managing temporary cash flow gaps or waiting periods before reallocating funds to long-term investments.
- Portfolio Diversification
Liquid funds add balance to an investment portfolio by reducing overall risk. They act as a stabilizer, countering the volatility of equity investments and ensuring steady returns regardless of market fluctuations.
- Tax-Efficient Liquidity
With lower tax implications compared to traditional savings instruments, liquid funds offer a cost-effective way to maintain accessible cash. Investors can leverage tax benefits, especially when held for over three years with indexation benefits.
- Efficient Cash Management for Businesses
Companies often use liquid funds to optimize their working capital management. By investing in these funds, businesses can earn higher returns on operational reserves while keeping cash readily available for immediate needs.
- Low-Risk, High-Liquidity Combination
Liquid funds maintain a portfolio of high-rated, short-maturity securities, ensuring safety and predictable returns. Their blend of low risk and high liquidity makes them a reliable option for conservative investors.
Top 10 Best Liquid Mutual Funds to Invest in 2024
Here is a list of the top-performing liquid mutual funds in India for 2024. These funds have been evaluated based on historical performance, expense ratios, and overall fund management efficiency.
Aditya Birla Sun Life Liquid Fund
This fund is a reliable choice for conservative investors, offering a proven track record of strong returns and capital preservation. It consistently ranks among the top-performing liquid funds, making it an excellent option for short-term investments.
- Why Invest? Provides competitive returns through a robust risk management framework, ensuring safety and stability.
- Performance: Delivers consistent returns year after year, showcasing reliability in varying market conditions.
- Expense Ratio: Maintains a low expense ratio, enabling cost-effective growth for investors
ICICI Prudential Liquid Fund
A trusted option for those seeking superior portfolio management, this fund ensures predictable returns by investing in low-risk securities. It is an excellent choice for both individual and institutional investors.
- Why Invest? Renowned for its superior asset quality and well-diversified portfolio, ensuring long-term reliability.
- Performance: Combines high liquidity with steady returns, offering a dependable solution for short-term goals.
- Expense Ratio: One of the most competitive in the market, enhancing overall investor returns.
SBI Liquid Fund
Backed by SBI’s trusted financial management, this fund stands out for its low-risk profile and efficient operations. It is a preferred option for investors seeking safety and reliability.
- Why Invest? A reliable choice with SBI’s credibility and proven expertise in fund management.
- Performance: Regularly features among the top 5 liquid funds in India, reflecting its strong performance record.
- Expense Ratio: Offers a low-cost solution, making it attractive for short-term investments.
HDFC Liquid Fund
This fund combines stability and performance, making it a popular choice among seasoned investors. Its experienced management team ensures consistent results, even in uncertain market environments.
- Why Invest? Managed by a highly skilled team with a strong track record of delivering reliable outcomes.
- Performance: Consistently provides steady returns across different market cycles, showcasing resilience.
- Expense Ratio: Features a low expense ratio, ensuring value-driven growth for all types of investors.
Nippon India Liquid Fund
Known for its hassle-free redemption process and efficient fund management, this fund caters to both individual and corporate needs. Its strong performance makes it a go-to option for short-term requirements.
- Why Invest? Features a robust track record and efficient management, ensuring investor confidence.
- Performance: Offers security and stability, making it ideal for those looking for predictable returns.
- Expense Ratio: Keeps costs affordable, guaranteeing accessibility for a broad range of investors.
Axis Liquid Fund
Axis Liquid Fund is highly regarded for its consistent performance, ensuring stable returns while maintaining a low-risk profile. It focuses on high-quality debt instruments to deliver predictable outcomes, making it a trusted option for conservative investors.
- Why Invest? The fund’s investment strategy emphasizes capital safety, balancing liquidity and returns effectively.
- Key Benefit: A low expense ratio makes this fund a cost-effective choice for short-term parking of surplus funds.
- Expense Ratio: ~0.22% (Direct Plan), ~0.29% (Regular Plan).
Kotak Liquid Fund
Kotak Liquid Fund stands out for its disciplined asset management approach and focus on quality investments. It is particularly popular among risk-averse investors looking for a reliable and efficient short-term solution.
- Why Choose? This fund ensures safety by investing in top-rated securities with minimal credit risk.
- Expense Ratio: ~0.20% (Direct Plan), ~0.26% (Regular Plan).
- Key Benefit: Its strong emphasis on capital preservation makes it an excellent option for investors prioritizing security.
Tata Liquid Fund
Tata Liquid Fund offers a combination of consistent returns and exceptional service quality backed by the trusted Tata brand. Its strategic portfolio composition ensures both stability and predictable earnings for short-term investors.
- Why Choose? The fund’s focus on efficient risk management makes it a standout performer in the liquid fund category.
- Expense Ratio: ~0.21% (Direct Plan), ~0.25% (Regular Plan).
- Key Benefit: Its robust track record of providing steady returns makes it a preferred choice for individuals and businesses.
IDFC Cash Fund
Known for its seamless liquidity and low-risk investment approach, IDFC Cash Fund is an excellent choice for those seeking dependable short-term returns. It prioritizes safety while offering competitive yields.
- Why Choose? The fund is designed to deliver stable returns with easy redemption options, ensuring investor convenience.
- Expense Ratio: ~0.18% (Direct Plan), ~0.26% (Regular Plan).
- Key Benefit: Its ability to combine liquidity and low risk makes it an attractive option for emergency fund management.
L&T Liquid Fund
L&T Liquid Fund has established itself as a reliable option for investors seeking steady performance and an investor-centric approach. It consistently delivers returns while ensuring capital safety through its well-diversified portfolio.
- Why Choose? Backed by L&T’s expertise, the fund emphasizes transparency and efficient fund management.
- Expense Ratio: ~0.20% (Direct Plan), ~0.27% (Regular Plan).
- Key Benefit: Its focus on investor-friendly policies and consistent growth makes it a strong addition to any portfolio.
How to Select the Best Liquid Mutual Funds to Invest
Choosing the right liquid mutual fund requires evaluating key parameters that align with your financial goals and risk tolerance. Factors such as performance history, cost efficiency, portfolio composition, and fund size play a crucial role in identifying the most suitable option for your needs.
Historical Performance
Assessing a fund’s past performance over one, three, and five years provides insights into its consistency and reliability. Funds with stable returns during varying market conditions often indicate strong management and a robust investment strategy.
A pro-tip: Start comparing the fund’s returns to its benchmark and peer funds to determine its efficiency.
Expense Ratio
The expense ratio directly impacts your net returns, as it represents the fund management fees deducted from the fund’s earnings. Opting for funds with a lower expense ratio ensures higher returns over time, especially for long-term investments.
A pro tip: Direct plans usually have lower expense ratios than regular plans, making them cost-effective options.
Portfolio Quality
The quality of securities in the fund’s portfolio determines its safety and stability. High-rated instruments such as AAA-rated bonds or government securities lower credit risk while ensuring predictable returns.
A pro tip: Review the credit ratings and maturity profiles of the instruments in the fund’s holdings to assess risk levels.
Fund Size
A liquid fund with a larger corpus often indicates efficient management and greater stability. Larger funds can handle large-scale redemptions without affecting overall performance, making them a safer choice for investors.
A pro tip: Avoid funds with an excessively large size as they may face challenges in deploying capital effectively, potentially impacting returns.
How to Use a Liquid Fund Calculator – Steps and Benefits
Planning investments in liquid funds can be more precise and efficient with a liquid fund calculator. This tool helps estimate potential returns by factoring in your investment amount, the expected annual return rate, and the duration of investment. It simplifies decision-making, allowing investors to align their financial goals with projected outcomes effectively.
1: Benefits of Using a Liquid Fund Calculator:
- Informed Decision-Making
The calculator enables you to evaluate different funds and investment scenarios quickly. It provides clarity on potential earnings, empowering you to choose the best liquid fund for your needs.
- Goal Alignment
By visualizing returns, you can ensure that your investment aligns with your financial goals, such as creating an emergency fund or managing surplus cash effectively.
- Time Efficiency
With instant results, the tool saves time compared to manual calculations, making it a convenient option for busy investors.
2: Steps to Use a Liquid Fund Calculator
Enter the Amount You Wish to Invest
Input the amount you plan to invest in the liquid fund. This could be a lump sum amount or a short-term surplus you wish to park for a specified duration. The investment amount is the primary variable for calculating your potential earnings and understanding fund suitability.
- Input the Expected Annual Return Rate
Add the average return rate of the liquid fund based on its historical performance. These rates are typically available on the fund’s fact sheet or official website. The expected return rate helps gauge how much your investment might grow over the specified period.
- Specify the Investment Tenure
Enter the duration for which you plan to stay invested. Liquid funds are highly flexible, making them ideal for short-term goals ranging from a few days to a few months. The tenure determines the compounding effect on your returns and helps align the investment with your liquidity needs.
- Review the Maturity Value
Once the inputs are added, the calculator provides an approximate maturity value, showing the total amount you can expect at the end of the tenure. The final output helps you make informed decisions and adjust your strategy if needed.
The Final Takeaway
The top 10 liquid funds listed above offer a blend of safety, liquidity, and competitive returns, making them a must-have in 2024. Use a liquid fund calculator to estimate your returns and pick a fund that aligns with your financial goals.
By staying informed about the top 5 liquid funds in India, you can make strategic decisions to maximize your short-term investment gains. Liquid mutual funds are an intelligent choice for those looking for a reliable and low-risk avenue to grow their wealth.
Invest smartly and reap the benefits of these top-performing funds in 2024!
