Top 10 Best Liquid Mutual Funds to invest in 2020 in India
Investors are scared to invest in debt mutual funds after the Franklin fiasco in debt funds. Bank FDs offer lower interest rates in the last few months. During this situation, if you have idle money or have money, which you want to park for a short term, one of the best option is to invest is Liquid Funds. Post Franklin fiasco, you would get doubt whether liquid funds are really safe. What are Liquid Mutual Funds? Is it safe to invest in liquid mutual funds now? Which are the Top 10 Best Liquid Mutual Funds to invest in 2020-2021 in India?
Also Read: Best Index Mutual Funds to invest in 2020
What are Liquid Mutual Funds?
Liquid mutual funds are open ended income schemes which invest in debt instruments and money market instruments such as government securities or bonds, treasury bills etc. These debt instruments have a maturity period of maximum of 91 days, hence are considered relatively safe as they mitigate volatility in the interest rate risk.
Just see this 100 second video which can tell you about liquid funds.
Courtesy: YouTube – MutualFundsSahiHai
Features of Liquid Mutual Funds
Here are the key features of liquid funds.
1) Liquid funds can be redeemed in 1 day. Hence, I generally advise investors to park some of their emergency money in liquid funds.
2) There is no lock-in period. You can sell any time.
3) There is no entry or exit load in liquid funds.
4) These funds have lowest interest risk.
5) These funds have lowest credit risk as they invest majorly in very short term debt instruments.
6) Many AMC’s offers immediate liquidity of funds up to Rs 50K and you don’t even need to wait for 1 day.
7) One unique factor in Liquid funds is that if you invest before the mutual funds cut-off time for that day, the units would be allocated based on previous day NAV.
Pros of investing in Liquid Funds
Here are some positive factors to invest in liquid mutual funds in India.
1) Liquid funds provide the highest returns between 5% to 6.5% per annum compared to Bank Savings account which gives 4% per annum.
2) Majority of liquid funds offer instant redemption of funds upto Rs 50,000. Beyond this you can get your investment on the next day.
3) There are no entry or exit loads in liquid funds
Cons of investing in Liquid Funds
Here are some negative factors of investing in liquid funds.
1) Unlike bank SB account where you can withdraw your money immediately, in liquid funds you can do instant redemption up to Rs 50,000 only. You need to wait for 24 hours to get your complete liquid funds. In case there is emergency of money which you need on same day, bank SB account scores high compared to liquid funds.
2) Even Bank FD’s score high compared to liquid funds in terms of faster liquidity as they give the funds on the same day.
3) If something happens to the bank, you can get deposit insurance up to Rs 5 Lakhs of your SB or bank FD amount.There is no such insurance in liquid funds.
Best Liquid Mutual Funds to invest now in 2020 in India
Here are the top 10 best liquid funds to invest in India and their returns. Note: We have excluded Franklin India liquid fund from this list as today the trust on this AMC is reduced after the debt funds fiasco.
# 1 – Quant Liquid Plan
# 2 – IDBI Liquid Fund
# 3 – Nippon India Liquid Fund
# 4 – Tata Liquid Fund
# 5 – Aditya Birla Sun Life Liquid Fund
# 6 – Axis Liquid Fund
# 7 – BNP Paribas Liquid Fund
# 8 – ICICI Prudential Liquid Fund
# 9 – Baroda Liquid Fund
# 10 – LIC MF Liquid Fund
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Top 10 Liquid Mutual Funds in 2020 – How is their performance?
Here is the performance of the liquid funds in the last 5 years.
| Fund Name | 3 Mth Ret (%) | 6 Mth Ret (%) | 1 Yr Ret (%) | 3 Yr Ret (% annualised) | 5 Yr Ret (% annualised) |
|---|---|---|---|---|---|
| Quant Liquid Plan | 1.2% | 2.3% | 5.4% | 6.6% | 7.0% |
| IDBI Liquid Fund | 0.9% | 2.1% | 5.1% | 6.4% | 6.7% |
| Nippon India Liquid Fund | 0.8% | 2.0% | 4.8% | 6.4% | 6.8% |
| Tata Liquid Fund | 0.8% | 2.0% | 4.9% | 6.4% | 6.7% |
| Aditya Birla Sun Life Liquid Fund | 0.8% | 2.0% | 4.8% | 6.4% | 6.8% |
| Axis Liquid Fund | 0.8% | 2.0% | 4.8% | 6.4% | 6.8% |
| BNP Paribas Liquid Fund | 0.8% | 1.8% | 4.7% | 6.3% | 6.7% |
| ICICI Prudential Liquid Fund | 0.8% | 2.0% | 4.8% | 6.3% | 6.7% |
| Baroda Liquid Fund | 0.8% | 1.8% | 4.7% | 6.3% | 6.7% |
| LIC MF Liquid Fund | 0.8% | 1.9% | 4.8% | 6.3% | 6.7% |
FAQs about Liquid Mutual Funds
Here are some frequently asked questions about liquid funds.
1) Are liquid funds tax free?
Liquid funds taxation is applicable like debt funds.
a) More than 3 years: If the liquid mutual fund investment is held for more than 3 years, one need to pay long term capital gains which is 20% with indexation.
b) < 3 years: If the liquid fund investment is held for less than 3 years, the capital gains are taxed at the individual income tax slab rate applicable to the investor.
2) Are liquid funds safe?
Liquid funds invests in short term government securities and money market instruments. Hence the risk in liquid funds is very low. Though there is a some element of risk, these are generally considered as a safe investment option.
3) Which is the best liquid fund to invest?
Below are the top 5 liquid funds to invest now in 2020.
#1 – Quant Liquid Plan
#2 – IDBI Liquid Fund
#3 – Nippon India Liquid Fund
#4 – Tata Liquid Fund
#5 – Aditya Birla Sun Life Liquid Fund
4) Are liquid funds better than FD?
Let us check this aspect in two pointers:
a) Returns: Liquid funds generated an average of 6% returns in the last 1 year, while bank FD’s are offering between 5% to 6.5% now. However, if you break the FD before maturity, the banks would pay you lower interest rates. This is not the case in liquid funds. You would still get higher returns.
b) Liquidity: You can do instant redemption of liquid funds up to Rs 50,000 and anything above this, you need to wait for 24 hours. On the other hand, Bank FD’s offer instant closure and if you close the FD today, you can get your money today.
If your objective is to get money in 1 day in case of emergency, liquid funds can score high as they offer better returns.
5) Can I invest lumpsum in Liquid funds?
Liquid funds are used majorly to park idle money or money you might need in the short term. Hence investors can invest lumpsum in liquid funds to park for such short term. In very few cases, someone would do SIP in liquid funds (like creating emergency fund).
6) Can liquid funds give negative returns?
These are very rare instances where liquid funds give negative returns. One such example is during redemption pressure (short period). If the AUM of the liquid fund is low and redemption amount is higher, it will force the Fund manager to sell the securities in a panic even at a lower rate to honor the redemption commitment which will lead selling securities at a lower price and thereby leading to lower or negative returns.
7) How to invest in liquid funds?
You need to have demat account or mutual fund account to invest in liquid funds. Just login to your account and select the liquid fund and make the payment and your order is executed. You would get your mutual fund units within 3 days from the date of the order execution. You can also visit the AMC website to invest in direct plans of liquid funds.
8) What are the major disadvantages of liquid funds?
Here are some major disadvantages of mutual funds.
a) One cannot take advantage of higher returns that are offered in long term funds.
b) One can do instant redemption up to Rs 50,000 only and need to wait for the next day for the amount to be credited. One cannot do instant redemption for the entire amount of investment of liquid funds.
9) Can I invest based on liquid funds value research rating?
Liquid Funds Value Research rating would get updated every quarter based on risk and return. One can consider top rated liquid funds from value research as basic step, do their own research and then invest in some of the top liquid funds in India.
Also Read: 20 Top Rated Mutual Funds from ValueResearch
10) Which are the best liquid funds to invest for 1 month?
Liquid funds can be invested to park your idle money for a tenure of 1 day to 6 month period. You can invest any of the top 10 liquid funds indicated above to invest for 1 month period.
11) Which are the top liquid funds as per Crisil?
Crisil (research and credit rating company) gives ranking for liquid funds. Here are the top rated crisil liquid funds:
i) Canara Robeco Liquid Fund – Rank-1
ii) Parag Parikh Liquid Fund – Rank-1
iii) Motilal Oswal Liquid Fund – Rank-1
In our ratings Canara Robeco liquid fund is falling outside top 10 liquid funds. Other two funds came in < 2 years. We don’t consider new funds in our top mutual funds list.
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Suresh KP
Top 10 Best Liquid Mutual Funds to invest in 2020 in India
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Hello sir,
I have been investing in the following funds since a couple of years through SIP’s. Could you please let us know if we can continue with the existing funds.
Due to the current market conditions, the fund values have been drastically reduced.
HDFC Small Cap Fund Regular Growth
Franklin India Ultra Short Bond Fund Super Institutional Direct Growth
Nippon India Large Cap Fund Direct Growth
DSP Equity & Bond Direct Growth
Tata Equity PE Fund Direct Growth
Aditya Birla Sun Life Low Duration Fund Direct Growth
SBI Magnum MultiCap Fund Direct Growth
Kotak Standard Multicap Fund Direct Growth
Invesco India Tax Plan Direct Growth
HDFC Balanced Advantage Fund Growth
HDFC Hybrid Equity Fund Growth
Franklin India Smaller Companies Fund Growth
Mirae Asset Large Cap Fund Regular Growth
Aditya Birla Sun Life Pure Value Fund Growth
ICICI Prudential Bluechip Fund Growth
Axis Bluechip Fund Growth
Mirae Asset Emerging Bluechip Fund Regular Growth
Axis Midcap Fund Growth
SBI Bluechip Direct Plan Growth
SBI Magnum MultiCap Fund Direct Growth
Invesco India Growth Opportunities Fund Direct Growth
Hi,
I read this article very good useful information….
Dear Sir,
I have got two queries. (1) The investment period in liquid , as given by you, is 1 day to 6 months. Is there any problem if I keep the fund more than six months?
(2) Even th e holding time in the liquid fund is short, is it safe to invest in funds like liquid fund and debt fund in the light of the recent fiasco in Franklin empeton?
Thank you
Hello AC George, Good to hear from you 1) You can keep them for 1 day to 10 years, no harm. Every mutual fund investment should be done with a financial goal to achieve maximum returns. In case you want to invest say 1-5 years, investing in liquid funds may not harm you, but you can invest in short term funds that can give better returns. 2) Like i indicated that in liquid funds assume there is liquidity rush for 100 reasons, fund manager need to sell the debt instruments at lower price and you might see negative returns. However this is rare case as the underlying instruments are short term in nature and fund manager may not even approach this method.
in present scenario of economic slow down where we can invest in large cap or in mid cap or in multicap though sip.
If I am in your place and have money, I would just pick-up funds across the portfolio of largecap, midcap, smallcap and balanced funds 🙂