Where do liquid funds invest?
Liquid funds invest in short-term money market instruments that carry a fi xed interest rate, such as treasury bills, and which have a maturity of up to 91 days. This makes them low risk.
Fund management charges for liquid funds tend to be on the lower side to be able to offer reasonably attractive returns in the short term. The maximum that a fund can charge is 1.05% as per SEBI.
Applicable NAV and cut-off time
Applicability of NAV in case of a liquid scheme is based on the receipt of application as well as the realisation of funds by the scheme within the cut-off time. For applications that are received up to 1.30 pm and the funds that are available for utilisation by that time, the NAV of the day immediately preceding the day of receipt of application is applicable. If the funds are received or available for utilisation after 1.30 pm, then the closing NAV of next business day is applicable.
Fund houses usually process and credit redemption proceeds within one business day from the date of receipt of redemption application. Some fund houses also offer ATM facility for liquid funds.
Points to note
- If the fund has received funds for utilisation but not the application, the NAV as per time stamp of the application will apply.
- For tax purposes, liquid funds are non-equity funds, and the holding period of the fund will deter mine the applicability of short term or long-term capital gain.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.