If you have surplus money in your account and do not wish to invest in fixed deposits, liquid mutual funds are an excellent option. They go into short-term market instruments and give great returns. There are many liquid mutual funds in India from many companies, but only a few ranks high due to their return rates and performance in a given year.
What are Liquid Mutual Funds?
Liquid funds must be considered as an investment option when you obtain a sudden inflow of cash either from the maturity of investments or a legal settlement. Liquid funds are not a substitute for a savings bank accounts because you cannot withdraw money instantly like from an ATM.
But the brighter side is that compared to the low 6-7% interest rates from the banks, it is more lucrative to invest in liquid funds. You can also exit the scheme anytime without penalty.
Who must invest in liquid funds?
Liquid funds are for those who are looking for a place to invest their idle funds. But you must be careful not to invest your emergency corpus into these funds as in liquid funds; redemption is when money is credited to your account the next day. This investment is ideal for people who have short-term objectives in mind.
Top 5 liquid Mutual Funds in India in 2019
Best liquid funds are nothing but debt or money market funds with the only difference in the duration of the investment. Liquid funds investment aim at short-term instruments like certificates of deposit, commercial papers, government securities and so on.
Before you select the best liquid fund, you must consider several qualitative and quantitative factors such as financial constraints, risk appetite, and term of the investment.
Following is the list of liquid mutual funds based on returns for a one-year period:
ICICI Prudential Liquid Fund
This fund too aims at providing reasonable returns, low risk, and high liquidity. Investments primarily are in money market and debt funds. ICICI Prudential Mutual Fund is a debt liquid fund that was launched in 2005. It is a low-risk fund with an annualized return of 7.9%. Its rank is 20 in the liquid fund’s category and has yielded returns of 6.6%, 7.7% and 8.3% in the last three years.
Axis Liquid Fund
This fund provides a high level of liquidity with a decent rate of returns. It comprises of a low-risk portfolio of money market and debt securities. But there is no assurance that the investment objective of this scheme will be fulfilled. Axis fund is a debt liquid fund that was launched on October 2009. It is a low-risk fund with annualized returns of 8% since launch. It’s ranked 21 in the liquid fund category, and its returns were 6.7%, 8.6% and 8.4% in the last three years.
Reliance Liquid Fund
The investment objective of the Reliance Liquid Fund is to generate optimal returns with high liquidity and minimum risk. Hence investments are mostly made in debt securities and money market instruments. Reliance liquid fund is a debt fund launched in 2003. It is a low risk with an annualized return of 7.4%. It was ranked 11th in liquid funds category. The rates of returns are 6.7%, 7.7%, and 8.3%.
Aditya Birla Sun Life Liquid Fund
This is an open-ended liquid fund with the objective of obtaining good returns with a great amount of safety and liquidity. This comprises of profitable investments in debt and money market instruments. Aditya Birla Sun Life is a debt liquid fund launched in 2004. It is a low-risk fund yielding an annualized return of 7.6%. It ranks 15th in the liquid fund category, and its return rates are 6.7%, 7.7% and 8.4% in the last three years.
UTI Liquid Cash Plan
This cash plan from UTI offers decent returns, low risk and comprises of the portfolio with high-quality money market and debt instruments. UTI Liquid Cash Fund is a debt liquid fund launched in 2003. It is a low-risk fund giving an annualized return of 7.4%. Its rank is 32 in the fund category, and it yielded returns of 6.7%. 8.7% and 8.3% in the last three years.
DSP BlackRock Liquidity Fund
This scheme also aims at generating profitable returns with low-risk investment in high-quality debt and money market instruments. DSP BlackRock liquidity fund was launched as a debt liquid fund launched in 2005. Ranked 36 in the liquid fund’s category, returns for the three past years were 6.6%, 7.6%, and 8.3%.
How to Choose the Best Liquid Funds
Most liquid funds follow the same principle of providing short-term liquid investment options with good returns. However, the following points must be kept in mind before choosing the ideal liquid fund investment:
- Choose the fund that gives the highest return in the previous one week to 1-month period.
- Choose funds that have an established fund size, and big institutions are already investing in them to get back high returns.
- Choose Funds that have an established credit rating and good quality of underlying assets.
How to Evaluate Liquid Funds
Liquid funds can be evaluated based on its various properties.
Fund performance is the key factor based on which you choose the liquid fund. Funds that have yielded consistent returns over a large period are an ideal choice. Funds that have outperformed their benchmark consistently for much number of years are a reliable option. For best results, it is vital to choose the fund performance that matches your investment capacity.
History of the liquid fund
History of the fund and the fund house also plays an important time in fund performance. Some fund houses have a good history of consistent performance in the investment scenario. These funds are resilient and survive market dips and slumps. Funds with a record of good performance over a period of 5-10 years will be a dependable choice.