Financial goals can have different time horizons. For short-term goals, one can choose to leave the money in the bank account dormant, or use this money Investment In mutual funds which are for short duration. For such requirements, investors may consider liquid funds,

Where do liquid funds do invest,

Liquid funds invest in short-term money market instruments that carry a fixed interest rate, such as Treasury bills, and which have a maturity up to 91 days. This puts them at low risk.

charge

The fund management charges for liquid funds are low to be able to deliver reasonably attractive returns in the short term. As per SEBI a fund can charge a maximum of 1.05%.

Applicable NAV and cut-off time

The applicability of NAV in case of Liquid Scheme is based on receipt of application as well as recovery of funds by the scheme within the cut-off time. For applications received up to 1.30 PM and funds available for utilization till that time, the NAV of the day immediately preceding the day of receipt of application is applicable. If funds are received or available for use after 1.30 pm, the closing NAV of the next business day is applicable.

redemption

Fund houses usually process and process credit redemption within one business day from the date of receipt of the redemption application. Some fund houses also offer ATM facility for liquid funds.

things to note

• If the fund has received the funds for utilization but not the application, then the NAV as per the time stamp of the application will be applicable.
• For tax purposes, liquid funds are non-equity funds, and the holding period of the fund will preclude the applicability of short term or long term capital gains.

Content on this page is courtesy of Center for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.