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Best Liquid Funds 2019: Top 10 Liquid Funds Research Team | Posted On Thursday, April 04,2019, 05:45 PM

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Best Liquid Funds 2019: Top 10 Liquid Funds



Liquid funds are basically Debt Mutual Funds that invest your money in short term and highly liquid Money Market Instruments like Treasury Bills, Commercial Paper and Certificates of Deposits, which don’t have much risk. The NAV (net asset value) of the Liquid Mutual Funds are calculated for 365 days unlike other debt mutual funds, where NAV is calculated on business days only.

These are Money Market Instruments which are highly liquid and have maturity period of less than a year, making it an attractive investment option. Liquid funds have the lowest risk vis-a-vis other debt funds. Another key benefit of the liquid funds is that they do not have entry or exit load.

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Best Liquid Funds 2019: Top 10 Liquid Funds

Who Should Invest in Liquid Funds?

Given below is the list of investors who must invest in Liquid Funds based on financial goals:

  • Suitable for investors with low risk profile: The Liquid Funds are suitable for investors who want to park their money for a very short time and enjoy protection of capital. The liquid funds are a good investment option for people who do not want to compromise on returns yet enjoy low risk. Securities with short tenure are less volatile and more predictable.
  • Suitable for Investors with short term goals: Investors who want to meet short-term goals can invest in Liquid Funds. They can park idle money and earn inflation beating returns on the deposits. Short term refers to a period of less than a year and Liquid Funds are ideal options for short term goals as they are less volatile vis-a-vis riskier products.
  • Suitable for Investors wanting to build an emergency fund: You can invest in liquid funds to build an emergency fund. These funds invest in money market instruments and are suitable even for a short-term investment horizon of less than 90 days.
  • Suitable for Investors who seek diversification: Liquid Funds work great for investors looking for diversification. If you have a very short time horizon of say 3 months, then Liquid funds are the best bet. Liquid Funds offer higher returns vis-a-vis savings bank accounts.
  • Suitable for Investors with liquidity needs: Liquid Funds are suitable for investors who need money at short notice.

Things to Consider as an Investor:

Expected Returns: Liquid funds have been consistent in generating returns ranging from 6.5% to 7.5% a year.

Cost: There are fund managers who are responsible for managing your portfolio. So, the liquid fund charges a fee to manage money efficiently. This is known as expense ratio. You must also keep in mind the cost/ expense ratio while investing in liquid funds.

Investment Horizon: Liquid funds are meant for short term investments where you park surplus cash. For investors having a long term investment horizon; they may look at investing in ultra-short term funds to get relatively higher returns.

Financial Goals: Liquid funds help investors meet financial goals. If you want to create an emergency fund, then liquid funds are very useful. Not only do they offer higher returns, but also high liquidity that can prove useful in case of an emergency.

SEE ALSO: Liquid Funds Vs Fixed Deposits

How to Evaluate Liquid Funds?

Fund Returns:

The performance plays an important role in the selection of funds. The investors always want to invest in funds that offer good returns. The best funds are those which have outperformed their benchmark and peer funds consistently for a period of 3, 5 and 10 years. Make sure to analyze the performance and invest in those liquid funds that match your requirements and financial goals to enjoy high returns.

Fund history:

The investor must also check the history of the fund house. This is an important criterion for fund selection. If a fund house has a history of consistent performance then this fund house can be trusted, as they offer constant returns during market ups and downs. A fund house that has a good track record of at least 5 to 10 years can be a good investment option for investors.

Expense ratio:

Expense ratio is the total percentage of fund assets, used for administrative, management, advertising and all other expenses. The average expense ratio for an actively managed mutual fund is between 0.5% and 1% and can go up to 2.5%.

Expense ratio shows the operating efficiency of the mutual fund scheme. It shows how much of your investment is being used to manage expenses of the funds. A lower expense ratio means higher return for investors. So, keep in mind the expense ratio before investing in liquid mutual funds. Choose a fund with lower expense ratio which can give superior returns.

Financial ratio:

A financial ratio (also known as accounting ratio), is a comparison in which certain financial statement items are divided. Financial ratios are used to gain information on the company performance. It is an interpretation rather than a calculation. This makes financial ratios a useful tool for business managers and investors. There is a range of financial ratios available that are used to analyze the performance of funds, based on different parameters. You may employ tools like standard deviation, alpha and beta to examine the risk-adjusted returns and relative risk in a fund. A fund with higher standard deviation and beta is riskier than a fund with lower beta and standard deviation. Look for funds with higher Sharpe ratio which means it gives higher returns with every additional unit of risk.

SEE ALSO: How to Invest in Liquid Funds?

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