Liquid Mutual Fund Schemes

Liquid Mutual Funds Schems are a type of debt mutual funds.

These schemes are investments that allow you to park your excess money for time frames ranging from few days to less than a year.

Liquid funds are the most preferred instruments to invest by corporate companies to temporarily park their money.

Retail investors too can use these schemes to hold money for few days and get slightly better returns compared to Bank savings account or fixed deposits.

Further, these can be used a temporary schemes to park funds so as to make a lumpsum investment and then do a Systematic Transfer Plan to a chosen targeted equity scheme.

Liquid scheme selection

If I am a retail investor and if my sole intention of using funds is to park money for few days, it would be better to use a liquid fund scheme from an AMC that is hardly use for my other financial goals.

For example, If I am already invested in other schemes of DSPBR, ICICI Pru, Franklin Templeton etc., I will avoid them for liquid funds.

However, if I invest in liquid funds solely for channeling the money to target equity schemes using the Switch method or the STP method, I have to invariably select the liquid scheme of the same fund house in which I wish to invest in the equity scheme.

Returns from most liquid funds are similar because of the similarity in the underlying assets.

As a security measure, prefer liquid funds that have good AUM, preferably Rs. 1000 crore or over. ==Ideal investment time frame-- Ideally, these schmes are good to invest for few days to maximum 3 months.

For temporary investment beyond 3-month period, other forms of debt schemes would fetch slighly better returns over liquid schemes.

In some cases, Liquid, Treasury and Ultra-short term funds or even some short term funds have the same lock-in.

In such a case, it is important that you pick the scheme that is right for your holding period.

Examples of some good liquid schemes

That said, my Liquid fund picks are:

Indiabulls Liquid Fund
JM High Liquidity Fund
Birla Sun Life Floating Rate Fund - Short Term Plan

Peerless Liquid Fund

As usual, go for Direct Plan - Growth Option

Liquid Fund Redemption

Question: Generally, when I give a redemption request today, when will get the funds in my bank account?

Liquid funds are used for investing for one or few days and hence provide high liquidity.

If the investor gives a redemption request before the cut-off time (usuall 1 PM Noon) of the transaction day, he is likely to get the funds on T+1 day i.e on the next bank working day.

The funds will usually be sent by NEFT and hence the next day morning, when the redemption is processed, we would get an email with details about the NEFT transfer.

The process is same irrespective of offline or online transaction and irrespective of where it is given i.e MyCAMS, KarvyMFS, Mutual fund website, MF Utilities or distributor websites (such as ICICIDirect)