PARAMETERS TO HELP CHOOSE THE BEST LIQUID FUND:

• Returns & Fund house checks: Past Performance of the fund and the track record of the AMC has to be checked. The long term track record of the AMC need to be given attention. Choose a fund house with a consistent fund history/performance/return record for the last 5 to 10 year.
• Securities details: It will be good to know the portfolio break-up in terms of the type of securities. The ratio of CBLOs, commercial papers, treasury bills, certificate of deposits, bonds with residual maturity of less than 91 days. This shows the true liquidity of the liquid portfolios.
• Credit Rating: Highest rating is AAA. Higher credit rating denotes less chances of default, hence less risky.
• Portfolio Allocation: Liquid funds have nearly zero marked-to-market component hence credibility of the issuers in the portfolio has to be looked at.Scheme’s portfolio and instruments in which allocation has been done has to be checked.
• Average Maturity: Liquid funds invest in instruments which mature within 91 days. Lower average maturity indicates that the fund is holding more cash, which in turn gives less return on capital gains.
• Objective of the fund: There are different plans like growth plans, daily dividend plan, weekly dividend plans and monthly dividend plans. Plans have to be chosen based on your risk appetite & fund requirement.
• Costs: Liquid funds charge a fee to manage your money called an expense ratio. Analyse least expense ratio with consistent fund returns.

LIMITATIONS OF LIQUID MUTUAL FUNDS

Costs: Some mutual funds have a high cost associated with them. Depending on the fund, the expense ration can be significant. Different funds have different expense ratios and need to be checked.

Dilution: Diversification has an averaging effect on your investments. While it saves you from suffering any major losses, it also prevents you from making any big gains! Therefore, major gains get diluted. That is why it is recommended that you do not invest in too many mutual funds.

Any financial decision has to be an informed one, where all the details need to be read and understood. Mutual funds are subject to your risk appetite and financial goals. Liquid funds pose as a good investment for those who have idle cash for a short time span.

Liquid funds are short termed income schemes that invest in money market instruments such as government securities, treasury bills among others. If you have idle money in your account, it is best to invest it in a liquid fund for short time periods.

Let us take an example, if you have to save for your son’s school fees due quarterly this is a good investment. Stock markets or equity funds are too risky a proposition for these important payments whereas bank fixed deposits will lock in your money for a long period and the returns will be low. Therefore, liquids funds are a good bet.

Liquid funds are dedicated funds for emergencies. The investor will also earn better than bank deposits. Many equity investors also use liquid funds to scatter their investments into equity mutual funds using the systematic transfer plan (STP), they believe this will get higher returns.

Financial advisors look at liquid funds to carry lowest risk as well as least volatility in the category of mutual funds. This happens because people generally invest in instruments with high credit rating. The net asset value of these funds sees a change to the extent of interest income accrued, including on weekends.

PROS AND CONS OF INVESTING IN LIQUID FUNDS

Pros

• No lock-in period
• Withdrawals can be processed in 24 hours
• No exit load
• Taxation benefits

Cons

• In a savings bank account, investments of up to Rs. 1 lakh are covered under deposit insurance. No such feature is available with Liquid Funds.

YOU SHOULD THINK OF MUTUAL FUNDS IF YOU:

• want to create a dedicated fund for emergencies
• have idle money to invest
• are looking to earn better than what you do from bank deposits, keeping in mind the fact that both are highly liquid in nature
• prefer short-term exposure
• prefer highest liquidity with the least risk

To summarise, liquid funds are a good platform to invest that would otherwise stay idle in an account. They work well for an investor as they offer reasonable returns, and seek convenience of liquidity over short term like any regular account. To know Consumer VOICE rating of top Liquid Mutual Funds, click here

Infrastructure mutual funds are mutual funds that invest in the infrastructure sector or its ancillary companies that own, manufacture and operate infrastructure assets or infrastructure projects. Infrastructure is said to be the tangible aspects such as roads, railways, transportation, electricity and so on which are indispensable to the day-to- day functioning of an economy. The state of the infrastructure is instrumental in determining whether the economy is a developed or developing economy. Infrastructure assets include: toll roads, airports, communication assets such as broadcasting and telecom towers, materials-handling facilities such as docks, rail facilities and other transport assets, and utilities such as electricity, power lines and gas pipelines.

The companies invested in these sectors could be directly linked to infrastructure (such as construction or production of capital goods) or indirectly benefit from sectors like banking and metal. Currently these funds are heavily tilted in their investments toward sectors like auto and auto ancillaries, banking and financial services, fast-moving consumer goods, telecom, constructions and projects, and petroleum and gas. We have encapsulated all you need to know about Infrastructure Mutual Fund Investments, to read more on a comparative test on which is the best infrastructure brand to invest click here.

WHY HAVE INFRASTRUCTURE FUNDS IN YOUR MF PORTFOLIO?

• Infrastructure funds are likely to perform better during the next 3 to 5 years (the 2017-18 Budget has provided Rs 241,387 crore for the infrastructure sector [with Rs 131,000 crore for railways]).
• The present government is bullish on providing infrastructure (like roads, rails and shipping) to boost the economy and also create substantial employment opportunities.
• The general expectation is that capital expenditure, both from private companies and the Government, is likely to increase in the coming years.
• The investor market expects falling interest rates: if true, it is bound to provide a fillip to private companies in expanding their capacities.

DOs

• Diversify your portfolio and limit your exposure to a particular sector. It's a thumb rule of investment that one must not take too much risk.
• Keep your exposure to a particular infra sector to 10-15 per cent of the total investment portfolio.
• By spreading your investments across sectors, you can minimise your risks to a great extent.
• Invest through a systematic investment plan (SIP) or a systematic transfer plan (STP) to benefit from any likely volatility in the market.

DONTs

• As the wise ones say, always diversify your portfolio and limit your exposure to a particular sector. Hence, desist from investing a lump sum in infrastructure funds.
• Maximise your investments within a time frame of three to five years (infra funds have given better returns over a three-year investment period than for a five-seven- year period).
• When the stock markets crashed in 2008, infra funds did not get over the negative impact till 2014. With the new government in office, the sector is picking up. But don't throw caution to the winds.
• In a growth-oriented economy, infrastructure funds may not get you stable income in the short term but the fund seeks to achieve capital growth in the medium term.

Remember These 3 Points

1. Take prudent exposure while building up your investment portfolio.
2. Go for a three-year investment period
3. Look for a SIP investment mode.
    

TYPES OF MONEY MARKET INSTRUMENTS

1) CERTIFICATE OF DEPOSIT (CD)

These are timed deposits like fixed deposits(FD) offered by scheduled commercial banks. The only difference between FD and CD is that you cannot withdraw CD before the expiry of the term.

2) COMMERCIAL PAPER (CPS) OR PROMISSORY NOTES

Commercial Papers are issued by companies and other financial institutions which have a high credit rating. These are unsecured instruments which are issued at the lower/discounted rate and redeemed at face value. The difference is the return earned by the investor.

3) TREASURY BILLS (T-BILLS)

T-bills are issued by the Government of India to raise money for a short-term of up to 365 days. These are the safest instruments as these are backed by the guarantee of government. The rate of return, also known as risk-free rate, is low on these treasure bills compared to all other instruments.  

FEATURES OF LIQUID FUNDS

• They have no lock-in period, withdrawals from liquid funds are processed within 24 hours on business days.
• Liquid funds have the lowest interest rate risk among debt funds because they primarily invest in fixed income securities with short maturity.
• Liquid funds have no entry load and exit loads, that means there is no penalty for exiting or breaking them
• Dividends received are tax-free. However, taxation is applicable

RETURNS FROM LIQUID FUNDS

Liquid funds are among the best investment options for the short term during a high inflation environment. Recent data shows that banks are taking fresh exposures in liquid funds which shows a high degree of safety and confidence in liquid funds.

STEPS TO INVEST IN LIQUID FUNDS ONLINE:
Investing in Liquid Funds is simple and easily can be done through a company or online. If you want to invest in liquid funds online, use the following steps, you can start your investment journey:

1. Sign in at any certified website like cleartax.in
2. Enter your personal details regarding the amount of investment and period of investment
3. Get your e-KYC done in less than 5 minutes
4. Invest in your debt fund of your choice from amongst the hand-picked mutual funds

This is an overview of liquid funds and the benefits. There are other parameters to consider like which is the right time and the best liquid fund to choose from. The decision to choose is forthcoming for people who want to make short term investments.

What are Liquid Mutual Funds?

Liquid funds are mutual funds that invest your money in short-term market instruments such as treasury bills, government securities, commercial papers and term deposits. These funds have low maturity period (3-6 months) and you can save money for example your child’s school fees. It is a low-risk instrument giving returns more than that received from bank.

TYPES OF MONEY MARKET INSTRUMENTS

1) CERTIFICATE OF DEPOSIT (CD)

These are timed deposits like fixed deposits(FD) offered by scheduled commercial banks. The only difference between FD and CD is that you cannot withdraw CD before the expiry of the term.

2) COMMERCIAL PAPER (CPS) OR PROMISSORY NOTES

Commercial Papers are issued by companies and other financial institutions which have a high credit rating. These are unsecured instruments which are issued at the lower/discounted rate and redeemed at face value. The difference is the return earned by the investor.

3) TREASURY BILLS (T-BILLS)

T-bills are issued by the Government of India to raise money for a short-term of up to 365 days. These are the safest instruments as these are backed by the guarantee of government. The rate of return, also known as risk-free rate, is low on these treasure bills compared to all other instruments.  

FEATURES OF LIQUID FUNDS

• They have no lock-in period, withdrawals from liquid funds are processed within 24 hours on business days.
• Liquid funds have the lowest interest rate risk among debt funds because they primarily invest in fixed income securities with short maturity.
• Liquid funds have no entry load and exit loads, that means there is no penalty for exiting or breaking them
• Dividends received are tax-free. However, taxation is applicable

RETURNS FROM LIQUID FUNDS

Liquid funds are among the best investment options for the short term during a high inflation environment. Recent data shows that banks are taking fresh exposures in liquid funds which shows a high degree of safety and confidence in liquid funds.

STEPS TO INVEST IN LIQUID FUNDS ONLINE:
Investing in Liquid Funds is simple and easily can be done through a company or online. If you want to invest in liquid funds online, use the following steps, you can start your investment journey:

1. Sign in at any certified website like cleartax.in
2. Enter your personal details regarding the amount of investment and period of investment
3. Get your e-KYC done in less than 5 minutes
4. Invest in your debt fund of your choice from amongst the hand-picked mutual funds

This is an overview of liquid funds and the benefits. There are other parameters to consider like which is the right time and the best liquid fund to choose from. The decision to choose is forthcoming for people who want to make short term investments.