Quick Answer: Who Should Invest In Liquid Funds?

Are liquid funds tax free?

Liquid funds held for more than three years are eligible for long term capital gains tax with indexation.

If you sell before three years, you have to pay tax as per your tax slab.

If you opt for the dividend option, the fund will be subject to a dividend distribution tax of 29.12%..

What is the benefit of liquid fund?

Liquid funds are categorised as low risk products from liquidity and interest rate risk perspective. This is because they hold very short term instruments where the chances of interest rate fluctuations are less. Returns on these schemes fluctuate much less compared to other debt funds.

Which is better liquid fund or debt fund?

The liquid fund is a subset of debt fund scheme that invests its fund in fixed securities having a very short maturity tenure….Taxation.ParametersLiquid FundsDebt FundsTaxationSame as Debt FundsShort-term: Taxed as per individual’s slab rates Long-term: Taxed at 20% and had taxation benefits4 more rows•Nov 28, 2020

Can I lose money in liquid funds?

Since a liquid fund invests only in short term securities, it’s market value does not respond much when interest rates change in the market. This means that liquid funds do not have significant capital gains or losses. … In market jargon, we say that liquid funds have a very low-interest rate risk.

What is the lock in period for liquid funds?

Liquid funds do not come with a lock-in period. The redemption of liquid funds is processed within 24 hours on business days. Liquid funds possess the lowest interest risk among all classes of debt funds as they mostly invest in fixed-income securities that mature soon.

Is it good time to invest in liquid funds?

The interest rate of liquid mutual funds is the lowest among all short-term investments due to low maturity period. No entry and exit loads are applicable. Liquid funds are a perfect solution for investors who wish to park their idle cash for a short duration without the risk of Capital Loss.

Can liquid funds give negative returns?

On an average, liquid funds have delivered 0% over the past week, according to data from Value Research and many large liquid funds have actually delivered negative returns. … These are categories that normally do not deliver negative returns, even over short time periods and are considered extremely low risk.

How much liquid funds should I have?

Most financial experts end up suggesting you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000. Personal finance guru Suze Orman advises an eight-month emergency fund because that’s about how long it takes the average person to find a job.

Is it safe to invest in liquid funds?

Liquid funds are high liquidity open-ended income schemes that invest in debt and money market instruments such as government securities, treasury bills and call money among others. These instruments have a maximum maturity period of 91 days and are considered safe because they mitigate interest rate volatility risk.