We all save money in banks for emergency needs, but do you know there is alternative to these savings a/c with same liquidity and safety levels in mutual funds?
What are Liquid Funds?
Liquid funds are a type of debt instrument which invests primarily in money market instruments ranging from 7-90 days. Generally liquid funds are relatively safer when compared to other categories in mutual funds.
Of all the debt categories in mutual funds liquid funds are relatively safer. They carry very little risk when compared to other debt instruments. Liquid funds are tax-efficient and gives relatively better returns than bank savings a/c. Generally High Net-Worth individuals, business professionals prefer Liquid funds as they gives much better returns than bank savings a/c.
Though liquid funds don’t give “Guaranteed”Return they earn more and above the bank savings a/c. Besides this, they can be redeemed at anytime except the recent modification of the holding period as Indian Government lays minimum lock-in period of 7 days from the date of the investment.
Insta-Redeem Facility under liquid funds–
The investor can instantly redeem his investments up to 50,000 rupees or 90% of the corpus within “30 Minutes” to his bank a/c per day.
If the investor wishes to redeem higher than 50,000 rupees or bulk amount from his liquid fund, he has to place an redemption request which enables the mutual fund house to transfer the proceeds within T+1 Days to the investors bank a/c
How are liquid funds taxed?
Liquid funds are a type of debt funds and the same tax rules applicable to liquid funds too!
If Liquid funds are sold before 3 years from the date of the purchase, the proceeds would be added to the investors income and taxed according to his/her tax slab.
If liquid funds are sold after 3 years from the date of the purchase; either 20% tax with indexation benefit or 10% tax without indexation would be applicable.