Liquid Funds: Invest

November 14, 2012 . Vidya Bala

Ideal Parking Grounds for your Surplus

Do you have surplus money in hand but don’t wish to lock them in fixed deposits? Then, instead of holding huge sums in your savings bank, you can explore options such as liquid funds.

In the current high interest rate scenario, if you wish your money to earn a bit while you hold them, then liquid funds can do a better job than savings account. The average return of liquid funds in the last one year was 9.3 per cent. That is as much as fixed deposit rates.

What they are

Liquid funds are simply debt mutual funds that invest your money in very short-term market instruments such as treasury bills, government securities and call money that hold least amount of risk. These funds can invest in instruments up to a maturity of 91 days. The maturity is mostly much lower than that.

They are least risky as well as least volatile in the category of mutual funds for the following reason: one, mutual funds mostly invest in instruments with high credit rating (P1+). Two, unlike other funds, the NAV of liquid funds is not volatile as the only change in their NAV is mostly as a result of the interest income that accrues. In other words, given their short-term maturities, these instruments are hardly traded in the market. They are held until maturity. Hence, their NAV only sees a change to the extent of interest income accrued, everyday, including weekends.

Differ from ultra-short-term funds

Another category of short-term debt fund called the ultra short-term fund is also suitable for short-term investing. But these are one notch higher on the risk chart compared with liquid funds. This is because ultra-short-term funds can invest in short-term instruments that have a maturity of over three months. These instruments may also be traded in the market. Hence, the NAV may swing in response to market movements, making it a little more volatile.

Two other key differences between liquid funds and ultra short-term funds are the exit load and dividend distribution tax (DDT). Liquid funds do not suffer exit load while a few ultra-short-term funds may levy them for exits made immediately after investment (time for exit may vary between funds). Liquid funds suffer DDT of 27.04 per cent (deducted at the AMC end, including surcharge and cess) but for ultra-short term funds it is only 13.52 per cent.

When to opt

Liquid funds are ideal parking grounds when you have a sudden influx of cash either because you have received money from any legal settlement or from maturity of investments. It is noteworthy that liquid funds cannot be a full-fledged substitute for a savings bank account. Barring some funds, you cannot withdraw money instantly (like you do with an ATM).

That said, given the low interest rates (about 4 per cent mostly and 6-7 per cent in the case of one or two banks) in savings account, you would do well to temporarily put your money in liquid funds to earn slightly higher interest. You can exit the scheme anytime without any exit load and receive your funds the next day.

Another way to make use of liquid funds is invest your lump sum receipts in them and then opt for a systematic transfer plan to invest in equity funds of your choice. Often, you would use SIPs to invest in equity funds. That is fine when you invest out of your monthly savings. But if you receive a large sum at one go, you can use liquid funds in such instances, to enhance your returns.

If your holding period is much higher than three months – say 6-9 months or more – then you can consider going for ultra-short term funds. Invest in these funds in one go as you need not worry about timing the market. Not all liquid funds will have SIPs options.

How to be tax efficient

You may view liquid funds as inefficient tax vehicles as they suffer from short-term capital gains tax (at your regular tax slab) if held for less than a year. Hence, if you are in the high tax bracket, this does hurt. But there is a more efficient strategy to handle this.

Consider opting for dividend reinvestment. The dividends stripped will be reinvested as units. These will be considered as fresh investments. With a low NAV stripped off dividend and reinvested units considered as fresh cost, your capital gain (sale-cost) will be almost nil or very low.

But if you are holding liquid or ultra short funds for over a year, then, you may well opt for growth option as you will get indexation benefits.


We have given a list of liquid funds that have done well in the recent years. This list is based on the funds’ low expense ratio, consistent average returns of over 7 per cent and a portfolio that has least maturity (to ensure low volatility). But it is noteworthy that the returns earned in the past couple of years may not be replicated, once interest rates fall. Yet, they may yield better than savings bank rate.


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255 thoughts on “Liquid Funds: Invest

  1. Nice Article,

    …….As business grows, the need for liquidity and flexibility of cash flow also grows. Liquid Fund, provide liquidity , flexibility and the potential of generating reasonable income from idle cash. So go ahead, invest and dream on !..


  2. Thanks for this article. It has been informational. I received 90 K today as part of my ULIP surrender. Would it be a good idea to invest that in liquid fund rather than keeping it in SB account ?

        1. Hello Bharat, No, liquid funds do not get any 80C benefits. No fund which can be exited at any point in time will have 80C benefit. Only ELSS funds, with a 3-year lock-in get the benefit.

      1. Hi Vidya, I am planning to move funds from F.D into Mutual fund (Debt fund). My plan is to invest in SBI Magnum Gilt fund. My concern is : do I have to time the stock market Index to invest in this kind of Fund OR anytime is okay.
        Also review, if my selection of Fund is okay.

        1. Gilt funds will need timing the debt market (not stock market) – especially the interest rate cycle. Hence it is better to go for other debt funds that are not sensitive to rate cycles much.


    1. sir this is good for you throw this you can able to make flexibility in you case amount and along with this you will get return also .

      Gaurao shrivastava

  3. Interesting Article..

    …..A liquid or a cash fund is built on three tenets – high liquidity, low risk, stable returns. Think about it, isn’t this but, what you get in your savings account too? ..Invest In Liquid Or a Cash Fund….

    Nikhil Shah

  4. Nice article, however there needs to be further details about reducing tax liability in dividend reinvestment option.

    Can you add an example about dividend reinvestment in liquid fund reducing the tax liability for better understanding by the article visitors?


    1. Tejas, here is a simple example. Let us suppose you hold 100 units of a liquid fund worth Rs 11.You bought it at Rs 10 and opt for daily dividend reinvestment. That means your cost is Rs 1000. If the fund declares dividend of say Rs 1 a unit, then you get 10 units additionally at the prevailing NAV. Liquid funds mostly declare their entire gain as dividend. That means you will hold 110 units at cost of Rs 1100 (cost wof initial units plus cost of addl. units). Let us suppose you sell immediately. At the time of sale, this may be more efficient compared with growth. Under growth option your NAV capital gain is Rs 1100-1000= 100, while in reinvestment it is Rs 1100-1100 = 0. You will therefore pay either nil or over low lower capital gains under reinvestment. And instead of a dividend payout lying in your bank account, you would have made more money by reinvesting and receiving more units. Vidya

      1. Just went through the post. Very informative 🙂 .. I was about the ask the same question as Tejas. After going through your reply,i’m still a bit confused regarding the divident reinvestment option.
        The calculation which i undestand is :
        Rs 1000 invested at Rs10 — No of units = 100
        Dividend announced at Rs1 a unit — Amount = Rs 100.
        Today NAV(when dividend ws declared) — Rs 11
        So, no of units invested = 100/11 = approx 9.1 only.
        Total units today = 100+9.1 = 109.1
        If i sell today, then selling cost — 11*109.1 = 1200.1
        Cost of investment = 1000+100 = 1100
        STCG == 1200.1 – 1100 = approx 90.

        1. Hi Abhishek, the dividends are reinvested as units at the prevailing NAV- that 11-1= 10. Similarly, your sale value is calculated on Rs 10 not Rs 11. Pl. note that the dividend is stripped from the NAV and given to you as units. Hence NAV is bound to fall. Vidya

          1. But the dividends are also under 27.45% DDT. So if the fund declares 100 rs as dividend, NAV gets reduced by 127 rs and the fund loses 27 rs as DDT. So actually compared to growth option, investor is saving only 3% in tax (considering highest tax bracket) 27% instead of 30%.

          2. Yes Sankha only liquid funds have 27.45% ddt (other debt funds have 13.52%). You are relatively better off in liquid funds by going for dividend payout or dividend reinvestment than growth option, if you are in the high tax bracket. If you are in low tax bracket, it makes sense to go for growth option. This is not the case with other debt funds where DDT is lower. Vidya

          3. I am not sure the taxation % for STCG is right. As per my understanding, Liquid funds (Growth Option) will be categorized like any debt fund for STCG… categorized under Short Term asset and the Capital Gain arises shall be taxable @ 15% under section 111A of Income Tax Act. So a growth option should be better than dividend option then.

  5. Thanks for this post. It is really difficult to find good articles on liquid/debt mutual fund. I have selected the below 2 MF for parking my money which I can use for buying an apartment in near future (could be from month to year).

    How do you rate these funds? My preference of selecting is to have min exit load and decent returns.
    Birla SL FRF-Long Term Plan(G)
    JM Money Mgr-Reg(G)

    1. Birla Sun LIfe Floating Rate LTP is a very good plan. But it is not strictly a ultra short fund. While the fund has no exit load and currently parks assets in short-term instruments, it has a mandate to invest in longer-term securities of even upto 10 years. It has in the past held securities with maturity of 200-300 days. Hence, the fund is not strictly in the same risk profile as liquid funds. If you are game for say 18 months of holding, this fund may be okay. JM Money Manager too is a good performer but has exit load of 0.25% if redeemed within 45 days. If you wish to hold only for a month, you may end of paying this load. Vidya

      1. HI,

        I have a annual salary of over 6 lakhs per annum….im planning to start SIPs from this may onwards……..aiming

        1. Tax Saving
        2. Paking of money for annual expenditure using SIPs for compulsary obligations such as Term insurance premium (Jun),Health insurance (Dec),College fees (Jun),Car Insurance (Dec)…..Rides and tours on bike or otherwise atleast twice a year + Procurement of annual rations (Rs 10000)
        3. Other than this i have about Rs 20000 bal from salary for investing through SIP.

        I am a Govt employee with govt accomodation as yet, we travel a lot (Due to postings every two years) and due to my hobby of doing Bike rides (Which also figures in my annual expenditure list).

        One more point to ask fundsindia provides ready to go portfolios how are they shortlisted? can i use them for my sips….also my salary comes at 1st of every month … good is the idea of transfering all the money into liquid funds and removing it as per requirements.
        Thanks in advance


        1. Hello sir, We can use this forum to address general queries. For more detailed review, kindly request you to send in these details using our Help feature – Ask Advisor (click the help tab after you login to your FundsIndia account). You may mail in and also request for a scheduled call, so that our advisors can call back. Tks Vidya

  6. I have not understood the taxation part yet. Some people advise that dividend is not taxable. Can you explain with few examples.

    1. The dividend is not taxable in your hands. But when the fund declares, it has to pay dividend distribution tax. Net, net, you indirectly lose out on that amount.- Vidya

  7. Thanks for the info Vidya. Can you do a piece about differences between different kind of debt funds (liquid, income, Gilt, Short term, Ultra Short term, etc) and clearly guide us about when to buy, how long to hold them and if lump sum or SIP related information? This would be really helpful.



    1. Hello sir,

      We would advise you to continue with the UTI scheme. The NPS scheme is undergoing a lot of changes and the underlying cost structure is also evolving. It is currently a non-flexible, locked investment that restricts your equity component in your holdings. Until the PFRDA bill passes and we are sure about the taxation rules for NPS investments, we are not comfortable recommending it for you.



  9. Hi Vidya

    In todays uncertain market condition and financial situation, if one has to park funds for optimized returns with low to medium risk for say 1 year what would you advise.

    1.Liquid funds- growth or dividend?
    2.Short term bonds
    3.MF balanced?


    1. Hi Jaya, If your holding period is less than six months then liquid or ultra short-term bonds are a good bet. In this a daily or weekly dividend reinvestment option instead of growth is tax efficient if you are in the high tax bracket of 20-30% If you invest lumpsum and are willing to wait for a year (nothing less), then short-term funds will suit you. Pl. note that many short term funds exit load for up to 9 months from date of purchase. Hence, holding of 1 year is required to earn optimal returns.
      Debt-oriented balanced funds will need a holding period of 18 monhts to 2 years. Equity oriented balanced funds are options for investment horizon of three years or more. – Vidya

      1. Thanks Vidya.
        Some of the liquid growth funds are giving annual return of 9 + %. Post tax n without much risk.
        Where as debt funds are giving similar returns with some risk attched.Your views pls

        1. Hi Jaya, You are right that liquid fund returns seem superior now to other debt fund options on a risk-adjusted basis. Liquid funds have been given such high returns simply because of an unusually long high-interest rate scenario that prevailed for almost 2 years. Once rates start trending down, then this kind of high returns is not possible from liquid funds. They have in the past generated around 4-6% return on an average. Hence while you may capitalise on the high returns now, some amount of risk (through other debt funds) may be required if you need to earn better returns, once interest rates start trending down and then become stable.

      2. It was a very good explanation. Thank you. Well, while investing in reliance Liquid fund, when I chose the daily dividend reinvestment option, it showed 10 thousand as minimum payment while the weekly dividend and reinvested showed 5 thousand as minimum payment. Is daily one is better that weekly dividend pay in terms of both return and tax savings please?

        1. Hello Manab, There is no difference in terms of tax savings between daily and weekly. With daily, your NAV will always remain close to your original buy price as dividends as declared almost entirely on the daily returns. With weekly, you may be paying marginal taxes when you sell. But remember, there is no real difference since the dividend is taxed with DDT or the gain is taxed at your slab rate. In weekly, there is marginally higher compunding since the money grows for a week before dividend is given. thanks, Vidya

  10. Hi Vidya,

    I have six months to reinvest the capital gains I made from the sale of a residential property into another residential property. In these six months, can I hold these funds in a liquid fund instead of simply leaving it in a savings bank account? Will I still get an exemption on the capital gains tax from the sale of the original property?

    Thanks for the article!

    1. Hi John, you will have to be careful as to when you are going to deploy your capital gain in another house property. Generally, if you intend to deploy the money in another residential property, but not immediately, then you will have to park your money in a capital gain accounts scheme (available in PSU banks), before the due date for filing of return (usually July 31). That is the only way you convey to the tax authorities, your intent to reinvest it in property. You can temporarily park the money in liquid funds but ensure that you either buy the property or move the money to capital gains account scheme before you file returns.Pl. note that liquid funds will not provide any exemption from capital gains tax. The temporary parking grounds for capital gains is only a bank-authorised Capital gains account scheme. Vidya

  11. I have Rs. 5lacs home commitment coming up in Jan and have that money in my SB accnt. Please let me know if I should park the money for a month in Liquid fund.

    If so – please suggest a fund.

    1. Hi Makarand, you can consider it. Pl. note that you will have short-term capital gains tax. To keep it to the least/nil, consider daily/weekly dividend reinvestment option. You may choose from any of the funds mentioned in the table, in the said article. – Vidya

  12. I have HDFC Standard Life ULIP plan.Last Two years the NAV value (i.e 1 lac)of policy is lesser than premium paid.So I am Thinking to surrender the policy & park into liquid funds.Is it OK.Please give suggestion.

  13. Wishing you a very happy new year 2013.

    I would like to thank you for an informative post. I invested in Dec 2012 in Birla sun life Floating rate short term plan – Daily Dividend Reinvestment option. I find that the rate of return through daily dividends is around 6.5 % per annum whereas if one had invested in the Growth option of the same fund, it is around 8.5% per annum.

    I would request you to explain why there is a difference between the two options.

    1. Wish you a splendid year Madhukar. When you compare between the two options, do take your fund value to calculate returns and not just the nav (NAV of dividend reinvestment option will be low liek a dividend option, since the units are credited to you from the dividend stripped from your NAV).
      That said, there could still be a difference in returns between growth and reinvestment in the case of debt funds. Debt funds suffer a 13.5 per cent DDT or dividend distribution tax (higher fr liquid funds)including surcharge and cess. That means the money available for reinvestment (by way of units) will be lower. In a growth option, since nothing is stripped as dividend, you will not lose anything from your NAV. -Vidya

      1. Thank you for your reply. It answers my queries. BTW, I found similar difference between returns of DSP-BR Liquidity Fund – Institutional – Growth & Daily Dividend options.

  14. Hi Vidya,

    I have Rs. 2.5 lakh available in my saving account and want to invest this amount through STP in these three equity fund:
    HDFC Top 200 Growth
    IDFC Premier Equity Fund
    ICICI Prudential Focussed Bluechip

    I was thinking about using Liquid funds to park this amount and use STP but please suggest if ultra short funds make more sense than Liquid funds for this lumpsum investement.

    1. Hi Bhupesh, if you choose the dividend payout or reinvestment option, then ultra-short-term funds may be more tax efficient as they have a lower dividend distribution tax. But if you go for the growth option then the only reason for going for ultra short-term may be the possibility of a little extra returns.
      Also, be aware that quite a few ultra-short-term funds have an exit load if redeemed or switched within a certain period from the day of investment.So while ultra short-term funds may earn you a wee bit more (with risks a bit more than liquid funds), ensure you choose one without exit load or make sure the exit load period is short enough.

  15. Dear Vidya,
    I have about Rs 2 lakhs of surplus cash in savings account in KMB . It has a sweep activated that makes deposits over 1 lakh into term deposit of 90 days @ 8.25% p.a interest.

    I would like to know given my investment horizon for these funds would be 9-10 months. Shall i continue with the current arrangement or opt for a liquid or ultra-short term funds.

    I am taxed at rate of 30%

    1. Hi Madhukar, Currently, liquid funds do yield a little more than the rates mentioned by you for your deposit. But if interest rate cuts happen in the coming policy, you can expect returns from liquid funds as well as deposit rates to gently decline.
      At current rates and given that you are in the higher tax bracket, you can consider a dividend reinvestment option in liquid funds. That way, you can also strip the profits and stay invested but suffer slightly lower tax (on account of dividend distribution tax). DDT will be 27.04% as against 30.9% for interest income under your tax slab. But do remember not to accumulate too much money in liquid funds. They should only be a kitty for contingencies and short-term goals. The rest should be invested in other higher yielding avenues such as equities. – Vidya

  16. Thxs for the such a nice article Ms.Vidya, its a quite informative. I have heard some mutual funds have started issues ATM card for the withdrawals/redemption. If you have any information pls pass on. thxs

  17. Hi,

    I am starting a PPF account. I heard that, in PPF the interest is calculated annually on April and it is advised to put the whole money between 1st and 5th April. Instead of managing 70,000 on April, I thinking of saving 6000 rs each month. I could save it in a saving accoount. But after reading this article, I think it might be a good idea, to invest 6000 in liquid funds each month and after 1 year sell all the funds and put it in my PPF. Is this correct? Making 70,000 by April 2014 could be viewed as a short term goal, right?

    What is your view?


    1. Hi Paul, Normally, early investments in PPF is recommended so that you can enjoy the maximum interest. Interest acrrues on an annual basis.In other words, it is not cumulative on quarterly or half yearly basis.
      Hence if you are investing lump sum in PPF it is best made early part of the financial year, so that you get interest for almost the full financial year.
      If someone is investing in PPF on a monthly basis, then the minimum balance between the 5th and end of the month is taken for interest calculation purpose at the end of year. Hence, the general rule is that if you are investing in PPF on a monthly basis, then you should invest before the 5th of every month.

      If you are saving to invest in PPF as a lumpsum then you can invest in liquid funds. But remember only those SIP installments that have crossed a year of holding will be treated as long term for capital gains tax purpose. You will have short-term capital gains tax on the rest of the money (which is held for less than a year). Of course, you can try to reduce capital gains by going for a regular dividend reinvestment option. – Vidya

  18. HI..


    1. Hi Mayuresh, Yes, you can park your money in liquid funds. As an investment strategy you should consider a combination of short-term deposits (depending on when you will require the money) and liquid funds. You could park a fourth to a third in liquid funds and rest in deposits. There is no separate circular governing societies.- Vidya

  19. Hi Vidya,

    I have a HDFC UL Endowment Winner plan which I started in 2009. I have put 50% in Defensive Managed Fund and rest 50% in Growth Fund II. I have so far invested 80K and the current value is around 70K. Even after considering the deductions etc. I am still loosing around 6K.

    Is it a good plan to continue with ?

    Also I also have options to change funds and below are the options I have.

    Liquid Fund II, Stable Managed Fund II, Balanced Managed Fund II,Equity Managed Fund II and Secure Managed Fund II.

    I am looking for long term (15yrs) investment on this.

    Please advice. Thanks in advance.

  20. Hello-

    I have received 25 lakhs from some prior investment. As of now, I do not have other plan for this amount but I might invest in another real estate or some thing else in near future if some attractive option comes up.
    Till date, I want my money to earn good post tax returns for me. What would you recommend? Please advice.


    1. Sir, since you need to temporarily park the money, you can consider liquid funds that will earn you returns better than savings bank rate. Or if your time horizon is not less than 6 months to a year you can go for short-term debt funds.

  21. Nice and informative article.
    Your illustration/ example of 22 November is still not clear to me and perhaps many more.
    If there is a dividend of Re. 1, which is paid as a unit, then you get 100 units as dividend.
    So, now you have 200 units with you. Does that mean, the initial investment of Rs. 1000 has now got double?
    Why do you use Rs. 2000 figure? Is it valid?
    Since each unit is worth Rs. 10 when you started investing, the additional Rs. 100 that you are earning will translate to Rs 100/Rs10 = just 10 units.

    Please enlighten.

    1. Hi Sunil, your understanding is right . We have inadvertantly mentioned 100 units instead of 10 units. I will correct this. Thanks for bringing it up. Vidya

  22. Helo,
    i have tempelton bluechip G fund valued of 1lakh can i book some profit at this market comditions or continue.I am retired person & have F/D in bank what you sugest me for regular monthly income.

    1. Hello sir, this market condition does not call for booking profits. The current 20,000 levels has lower valuations unlike the one in 2008. But if you are a retired person and need regular monthly income, no fund can guarantee it. You can go for ultra-short term funds like Templeton India Low Duration or short-term funds such as Birla Sun Life Floating rate Long Term Plan. You can either opt for dividend payouts (no fixed or guaranteed dividend) or use a systematic withdrawal plan after some time and withdraw fixed amount every month). Pl.note that any capital gains on debt funds will be taxed. – Vidya

  23. Hi, I am 24 years old n my monthly income is 18,000. Can you suggest me a MF through which i can get tax exemption and at the same time a good channel for investing for my future. Thank you in advance.

    1. I can invest 5,000 every month and my time horizon is 1-2 years, after which i am planning to increase my investment amount.

    2. Hi Theju, you have 2 queries. Not sure if they are related. For tax-saving purpose, you need to be locked in for 3 years. Franklin India Taxshield (conservative) and ICICI Pru Tax Plan are some of the funds we have been recommending. Please note that every installment will be subject to a lock-in of 3 years. For your other investment needs (if they are not for tax planning), you should invest in equities only if you have at least a 3-year time frame. If you do, then you can consider our starter portfolio in the Ready-to-go portfolio section (which comes when you click Mutul funds (in the top black panel next to My account).- Vidya

      1. Thank you very much Madam. In my 2nd comment i wanted to mention that i am ready to invest 5,000 per month. Do you suggest a tax-saving MF or an equity MF in my case?

    1. Hi Praveen, In a daily dividend payout option liquid funds will seek to declare the appreciation in the NAV for a day, as dividend. Similarly if it is dividend reinvestment, the same will be given as equivalent units and added to your existing units. As far as the dividend is concerned, they are not taxed at your end. They suffer dividend distribution tax of 27.04% (including surcharge and cess) at the AMC end. But that effectively reduces your NAV.
      As for capital gains, any short-term gain (less than a year) will be taxed at your tax slab of 30% and long term gain will The advantage of daily dividend is that the NAV is kept close to your cost as the gain is stripped and given to you as dividend. Hence your capital gain will almost be nil.
      Hope this helps. – Vidya

  24. Hi Vidya

    First of all thanx for sharing such an informative article.

    I’ve got a couple of questions:

    1. For investing in liquid funds is there a minimum amount required by the fund co.s?

    2. Among all the funds, which funds would you suggest to invest in terms of no exit load & better returns?

    Have a nice day!


    1. Hi Manas. tks. Different fund houses have different min. amt requirements. In many cases it is Rs 5000 min. You can check them out before investing, when you click individual fund names in your FundsIndia account. The top performing liquid funds will keep changing in the short term too simply because they hold very short instruments. Hence, based on the returns prevailing then and the instruments they hold, it would keep varying. Hence, there will be no one consistent fund that will always offer high can consider Birla Sun Life Floating Rate Short Term Plan (min Rs 5000 no SIP allowed), HDFC Cash Management Savings (min initial amt rs 10,000, SIP allowed) or DSP BR Liquidity (min Rs 5000, no SIP allowed) based on whether you need to do SIPs or not. None of these have exit loads. – Vidya

  25. Hi Vidya,

    Thanks for the informative article.
    I have the habit of investing through Bank Recurring Deposits for yearly educational outgoings of my 2 children as well as annual Mediclaim & PPF Contributions.
    The time horizon is usually from 1 to 10 years.
    My age : 47.

    Do you have any alternative suggestions for better returns?


    1. Hi Shishir, Thank you for your comments. Going by your requirement (for school fee, policy premium and PPF), your time frame is only one year. In such as case, you would be better off investing in liquid funds. But do note that liquid funds may not always deliver returns higher than RD. But given that they are tax efficient, you may be able to get better post-tax returns. For your other longer term needs, you may use income funds such as Birla Sun Life Dynamic Bond or IDFC SSI Medium Term Plan A. These will have an exit load if withdrawn too early (180 days for the birla fund and 270 days for idfc) . Also, nyou shoudl have a min. time frame of 18-24 monhts to invest in these funds. They can give you returns superior to RD. Tks Vidya

  26. Hi Vidya,
    First of all thank you for this post.

    I have few insurance policies premium to be paid after interval of few months (approx 63K per year) and I am saving for it every month from my salary (approx 5.25K per month). Is there any way to gain most out of my savings rather than putting these money idle in saving account for few months?

    Please note that I fall under 10% tax slab.
    Below table clearly illustrates savings and expenses month wise.

    February-13 – 5250
    March-13 – 10500
    April-13 – 15750
    May-13 2,168.00 18,832.00
    June-13 – 24,082.00
    July-13 24,264.00 5,068.00
    August-13 – 10,318.00
    September-13 – 15,568.00
    October-13 3,349.00 17,469.00
    November-13 2,168.00 20,551.00
    December-13 6,712.00 19,089.00
    January-14 24,264.00 75.00
    February-14 – 5,325.00
    So on…

    Please advise. Thanks.

    1. Hello sir,

      The data provided by you in this blog is not clear (as it is not tabulated). Broadly, liquid funds should meet your need of paying the premium by withdrawing anytime without any exit load. You can go for the growth option instead of dividend payout/dividend reinvestment, since your tax slab (10%) is lower than the dividend distribution tax of about 25%. You will suffer short-term capital gains (in your case 10%). Even then, net of tax, the returns from liquid funds may be superior to savings bank interest. To help build a portfolio, kindly use the Ask Advisor forum in your FundsIndia Account (on the right click help tab and you will find this option) to either set up a telecon with our advisors or get advice through mail. – Tks VidyA

  27. Hi Vidya,
    First of all thank you for this post.

    I have few insurance policies premium to be paid after interval of few months (approx 63K per year) and I am saving for it every month from my salary (approx 5.25K per month). Is there any way to gain most out of my savings rather than putting these money idle in saving account for few months?

    Please note that I fall under 10% tax slab.

    Below table clearly illustrates savings and expenses month wise.

    Month Premium Amount Balance in Saving a/c for Insurance
    February-13 – 5250
    March-13 – 10500
    April-13 – 15750
    May-13 2,168.00 18,832.00
    June-13 – 24,082.00
    July-13 24,264.00 5,068.00
    August-13 – 10,318.00
    September-13 – 15,568.00
    October-13 3,349.00 17,469.00
    November-13 2,168.00 20,551.00
    December-13 6,712.00 19,089.00
    January-14 24,264.00 75.00
    February-14 – 5,325.00
    So on…

    Please advise. Thanks.

  28. Hi Vidya,

    Is it a good choice to invest in liquid funds at this stage, since the interest rates are falling. Please let me know ?

    1. Hello Sirish, the primary objective of investing in liquid funds is not return, it is liquidity. Hence, it is best not to time one’s entry or exit in liquid funds based on interest rates. liquid funds, are, afterall a place to temporarily park your money but getting some returns while you do so.
      Having said that, yes, a falling interest rate would mean lower returns from liquid funds. But since the banking deregulation of saving bank rate in 2011, interest rate on savings bank too will fluctuate in line with broad interest rate movements. That means your savings bank rate can also fall.
      Net, even if both savings rate and liquid fund returns fall, chances are that liquid funds will give you slightly higher returns when seen on a post tax basis, if you choose your strategy well (like dividend reinvestment option and so on). – Tks Vidya

  29. Hi Vidya,
    what would we be declaring for the cost value of the asset and sell value of the asset in IT returns
    when wee sell the Fund the investment date will be same when I bought and no the one which gets accumulated. can you please highlight on the tax treatment


    1. Hello sir, I am unable to follow your question. Can you explain a bit? Do you mean capital gains for any specific option like dividend reinvestment or capital gains when you keep buying a liquid fund at different points? tks Vidya

  30. Hi Vidya,
    I am having varying balance in my savings account from Rs. 5000 to Rs50000. So is it a good option to go for liquid fund? Since I am totally new to this field, it will be appreciated if you guide me how to invest in liquid fund as an individual?
    Thanks in advance!!

    1. Hello sir, you can carve out a part of your savings, that you will not need for day-to-day operating expenses and put them in a liquid fund. Remember liquid fund can act as a contingency fund, which you can exit in 1-2 days’ time (based on when you transact) but cannot be used to meet immediate expenses like you woudl with a ATM card. Calculate the money that you would have in your account, post your regular expenses and then set this aside in liquid funds. Tks Vidya

      1. Thanks for guidance. I will definitely follow these instructions. Can you help me with the procedure for investing in liquid funds? I am totally unaware of this field so expecting some detail steps if possible.

        1. hello sir, for transaction related queries pl. contact our customer support (click the help tab in your fundsindia account after you login). For any portfolio related advice, pl. fix an appointment (our advisors will call back) or provide a detailed query through mail using our Ask Advisor feature (click help and you will see this) Our advisors will respond. Tks

  31. Hi Vidya,

    I have query regarding the dividend distribution tax.For example,If I invest in a liquid fund at 10rs NAV and fund declares a 1rs dividend.Would the 27% ddt be deducted on the declared dividend of 1rs resulting in 0.73rs dividend received?

    Or would the 27% ddt be deducted from the fund’s NAV and not the dividend thereby decreasing NAV from 11rs to 9.75rs?

    1. Hello sir, Technically, your NAV is unlikely to fall below Rs 10 in a liquid fund so we will just take it as an illustration . Yes, while the DDT is calculated on the dividend, it is deducted from the NAV. Hence, if Re 1 is given to you as dividend, the DDT (including SC and cess) of 0.2803 will be deducted from NAV. In other words, it is neither made available to you in the dividend nor does it remain part of your distributable surplus any more. Like other expenses, it is deducted from NAV. Tks

      1. Hello Vidya,

        Does it mean that new NAV shown is after DDT? (e.g. today’s [22-mar] Quantum liquid fund NAV is 16.543, so it would be after DDT, right?)

        1. Hi Sandeep, you have stated the growth option NAV. That will not suffer DDT as no dividend is distributed. Yes, if you look at the monthly or daily dividend NAV, if dividend is paid out, then the NAv next day will be less by payout and DDT. tks, Vidya

  32. Hi Vidya,
    I am a Funds India client and have been doing a VIP in quite a few MFs ranging from Equity funds to Gold funds to US Equity funds to sectoral funds. Right now, my goal is long term and I just want to accumulate money for my kids future and any other unforseen contingency. So I am not very keen on the liquid funds. However, after reading the above discussions, want to ask a question. How do we compare the NCDs that some of the companies offer to the Liquid funds (in terms of risk, returns and any other important parameters that could be deciding factors)


    1. Hello sir,
      Thanks for posting. Liquid funds and NCDs are not comparable. It would be like comparing your savings account and NCDs. But let us state how they score on the following:

      Liquidity: Liquid funds score; NCDs offer poor liquidity although traded in debt market
      Risk: Liquid funds are least risky . NCD risks vary based on the company that issues
      Returns: NCD returns vary. But in general, liquid funds are unlikely to deliver returns like NCDs as NCDs are longer duration than liquid funds and hence manage higher returns
      Tax efficiency: Liquid funds are tax efficient if right strategy is used. NCD interest (if held to maturity) are taxed at you income slab

      In all, liquid funds are NOT investment vehicles..they are superior parking vehicles for saving temporarily.

      If you wish t compare NCDs, you must do so with income funds. In this, the latter scores in terms of liquidity, risk and tax. But returns may vary again..a risky NCD may deliver more. But on a risk-adjusted basis, it is likely that good income funds score over NCDs. Hope this helps. Tks Vidya

  33. Good article…

    But i am a bit disappointed when i cant see Escorts Liquid plan scheme in fundsindia schemes.

  34. Hi Vidya,

    With Budget 2013, isn’t the tax treatment for DDT on liquid funds as well as Ultra short term Debts (or any debt for that matter) now the same? Or am I mistaken there?

    1. Hi Faheem. You are right. Effective June 1, DDT will be the same for all debt funds. The blog post on liquid funds that you have seen is a dated one. Tks, Vidya

  35. Hi Vidya,

    My FD worth 5 lakhs is expected to mature in April13. Should I renew this FD at the prevailing FD bank rates or invest in MF Debt fund. Pls suggest good fund where I can surely get better post tax returns. I am 20% tax bracket and I can invest for 3 years.

    1. Hello sir, Current 3-5 year FD rates would range around 8.75% (a few banks offer higher rate). Debt funds hold potential to deliver superior post-tax returns if held for similar period, esp. if you are in the 20-30% tax bracket. But pl. note that MFs do not guarantee returns. Kindly read our take on income funds and deposits in
      The article has some of the consistent performers in income fund category. Tks, Vidya

  36. Hi Vidya,

    Firstly an excellent article and secondly I need your suggestion.
    I invested around 60K in IDFC Money Manager Fund Treasury Plan (Monthly Dividend Reinvest) in April 2012. The money has grown almost @ 7%. My advisor suggested me to opt for dividend reinvestment coz of the same reason that dividends would be tax free in my hands and Growth would incur short term capital gains tax, if I redeem within a year as I wanted to use this fund as an alternative to Savings account while earning better than and redeem some amount when need be.
    I like this fund as it enables me to redeem thru phone/sms/online , however all I want to know is whether I should stick to dividend reinvest or should I switch to Growth option. I am going to put another 50K in this in a week’s time.
    My tax bracket: 10% (After all deductions and tax saving measures 🙂 ).
    Looking forward for your suggestion soon.

    1. Hello Shouvik,
      If you haven’t gone through this article on dividend vs growth pl. take time to see it:
      Coming to your question, dividends on liquid funds do suffer tax, just that you suffer them indirectly, instead of paying from your pocket. Here’s out it is: the dividend distribution tax (27.03% now and 28.3% from June 1 – these include surcharge and cess)is calculated on the dividend declared by the company. While the full dividend declared comes to your hands, the DDT is deducted from your NAV and paid by the AMC to the tax guys. Hence, you are the one to suffer tax indirectly.
      If you are in the 10% tax, you can see that the DDT % paid is higher than your tax bracket. Hence, you may well use the growth option unless you move to 30% tax bracket. Just that you have to keep track of the capital gains on every redemption you make. If you have your FundsIndia account, your capital gains statement will anyway provide you with a summary of the gain.
      Thanks, Vidya

  37. Thanks Vidya for your suggestion. I went thru the other article u mentioned and it is as excellent as this one. I appreciate the kind of knowledge you share. Can you please let me know the following:
    1) In the Debt Fund I mentioned above, what STCG and LTCG implications would be applicable if I switch to the growth option(during redeemption) and how do I calculate them, coz I understand that I need to declare them while filing my returns
    2) Given the flexibility of the redeemption this fund provides (phone/online/sms – direct credit), how do u rate this fund (keeping in mind , I am using it as an alternative to surplus account in savings account and may need them when necessity arises).

    1. Hello Shouvik,

      You will have to apply the first in first out method for computing your tax. The units that were bought first will be treated as exiting first, when you sell them. The capital gain, on this will be added along with your other income (such as salary), if it is short-term capital gains.The total tax computed on the total income, if it exceeds your tax paid so far (TDS deducted in various places), has to be paid out.
      It is a simple process to calculate if you hold your units in a online platform.

      2. I just noticed that you are talking about an ultra short-term fund and not a liquid fund (ultra short-term currently has about 15% DDT but will increase to 25% from June).I hope you know that it has an exit load if redeemed before 30 days. Liquid funds will deliver slightly lower return but are lower risk and have no exit load. If you do not withdraw in a short span, you can hold ultra short-term funds.
      Otherwise move to liquid funds. You may pl. refer to the article for alternative liquid/ultra short-term funds. The one you are holding delivered well in recent times but is a little high on the risk scale (compared with peers) as its instruments mature with a slightly longer duration. If that does not worry you, you may hold on. For more fund-specific advice, you may have to use our ‘Ask Advisor’ tool in the help tab in your FundsIndia account. Tks, Vidya

  38. Thanks Vidya.
    Can you please provide me the link of the article u mentioned above….
    “You may pl. refer to the article for alternative liquid/ultra short-term funds. ”
    Also, do you have any article in Funds India , which provides details about the calculation of Short term and Long term capital gains tax.

    1. Hello Shouvik, Its the same article you read on liquid funds:
      At FundsIndia, the capital gains is worked back end and appears automated as a capital gains statement for the investor, whenever they wish to view.Here’s an external article, it is a little dated but will still give you an idea on calculation:
      You will be able to get more articles on capital gains calculation on the net. Tks, Vidya

  39. Hello Vidya,

    I find that Escorts Liquid Fund gives the highest rate of return among all the liquid funds for almost all time periods? Why is it not recommended?
    Is Escorts MF not a reliable AMC?


    1. Hello Arjun,

      Yes, Escorts has too small an asset base in this fund and overall too Escorts AMC and Sahara have amongst the lowest AUM managed. Their track record is all not great in mfs. This is where, rating merely based on returns can be risky. It is best that you consult an advisor to know a fund house’s background/track record. tks, Vidya

  40. Hi Vidya,
    Thanks for the article. I have around 5 Lakhs rupees sitting on my savings account and would not need it till end of year(for my marriage). I have an outsanding home loan. I have invested 50000 in Birla SL cash plus (G) and 50000 in ICICI Pru liquid(G). Can you please tell me if i should go ahead and invest rest 4 lakhs also in Liquid funds?

    1. Hello Datta,

      Ensure that you are sufficiently liquid to pay your home loan EMIs. Also you seem to have a lot of amount already in liquid funds. Do you need all of those plus the current surplus for your marriage? If so, you may hold them all in liquid funds. But ensure, your savings bank has sufficient surplus for your day to day operational needs. Tks, Vidya

      1. But why don’t you enable customers like us to invest in Escorts liquid…I am disappointed with fundsinida on this…

        1. Hello Sir, We take in to account the best fund houses and almost all AMCs are available with us. If we have not allowed a few like Escorts or Sahara it is because of our assessment of governance issues in the group. we try to stick to those that are best from purely an investor interest angle. I hope you aprpeciate the issue. thanks, Vidya

  41. Hello,

    I would like to enable STP to Quantum Long term-G and ICICI Pru Bluechip-G from respective liquid funds.

    Which option (Growth/Divident pay/ D-Reinv) would be recommended while selecting liquid fund ?

    1. If you are going to hold the liquid fund for less than a year (which may be the case if you do STP right away), opt for growth if you are in the 10-20% tax bracket. Go for div. reinvestment if you are in the 30% bracket. tks, Vidya

  42. Dear vidya mam

    please confirm me abt ddt in liquid and debt fund.

    suppose, i invested any amount in liquid fund div option.

    my dividend will be tax free or not??
    who will pay the ddt? amc or investor.

    does the amc pay ddt on behalf of investor and then distribute to the investor?

    as per tax reckoner, in liquid fund ddt is aroud 27%.
    who pays the amount,
    does the investor pay the ddt after receiving the dividend?
    does amc deduct 27 %, then distribute it to investor?

    1. Hi Ashish,

      Dividends from debt funds are tax free in your hands. But they are deducted and paid by the AMC. The onus lies on the AMC’s part. But you indirectly bear it because the DDT amount is deducted from your NAV (not from the dividend you receive) at the time of distributing the dividend. Hence, your NAV falls to the extent of dividend and DDT.

      You need not show the dividend income as taxable in your tax filing or show the DDT deducted as TDS. It does not apply at your end at all.

      Hope this helps.
      tks, Vidya

  43. Hi Vidya
    Do you think investing in Company Fixed Deposits gives better yield than investing in debt funds?

    1. Hi Anand,
      One category of debt funds, called income funds have beaten FDs in the long term. Pl. read this article for further clarity and data:

      As for company deposits, it is a highly risky proposition to go for a company than given 14% or 15%. It only means that the company is really strapped for cash. Any rate given by a company that is 1-2 percentage points over other peers such as HDFC OR Sundaram Finance should be checked well for rating before investing.
      A debt fund, on the toher hand, can take calls based on first-hand information and diversifies its risk by investing a bit in slighly low credit instrument and a majority in AAA-rated instruments.


  44. Hi,

    I will not fall under any incometax slab and would like to invest 20,000 in mutual fund so guide me in which fund i can invest with high interest ROI.

    And also recommend some MF fund.


    1. Hello Sir,

      Thank you for your query. Portfolio suggestions are made to our investors based on their risk appetite and time frame of investing. Investors are requested to use the ‘Ask Advisor’ feature in their Fundsindia account to help us provide advice. Thanks, Vidya

  45. Hi Vidya,

    You mentioned based on performance and rating of AMC one should not invest.Pleas guide me for peerless debt funds. was planning to invest in liquid, ultra short and short term funds of peerless due to consistency and less volatility.
    Their AUM size is small shall i proceed.


    1. Hi Barkha,

      Peerless does not have a very long track record in MFs but have been in the financial industry for long. Their debt funds are building a reasonable track record for themselves. But it is never a good idea to invest all your money across categories in the same fund house. You would do well to diversify across 1-2 fund houses for liquid, ultra short term and short term funds.

      I request you to use the ‘FundsIndia Advisor’ feature in your FundsIndia account to answer your queries on choice of funds/portfolio building. This would help us track and respond to a query better than replying through blog.

  46. Hi Vidya,
    Nice article.
    More than the article, I liked the Comments which gives good info.
    Actually, I am surprised that Govt jacked up the Taxes on Dividend distributed by Debt funds when they should be encouraging people to invest more in Mutual Funds.
    Your views on this.

    1. Hello Srikanth, the IT dept. has merely brought it in line with taxes that you would otherwise suffer as capital gain under growth option. Now the difference is considerably narrowed and places dividend and growth rough on equitable grounds. There are strategies to be tax efficient. Hence this should not be a put off for investors. Thanks, Vidya

  47. Hi Vidya,

    I have few Lakhs as surplus money. Investing in long term debt or even short term debt may not be good in current scenario. I have invested it in HDFC liquid fund with growth option and may keep it for a year also if economic situation in country does not improve. Liquid fund may give 7-9% return tentatively. I am 30% tax bracket. I have few question :
    – Is it good to keep money in liquid fund if current uncertain economic situation continue?
    – will tax implication be 10% in liquid fund if held for more than 1 year?
    – where do i need to invest money for long term to get better return in this highly risky and uncertain environment in India?


    1. hello Sanjay,

      1. It is good to keep money in liquid fund for contingency for short-term periods when you are undecided in the market. But you should use s systematic transfer plan to move it to other funds. The current uncertanity offers opportunities to average well if one uses SIP.
      2. For liquid funds held over one year tax is 10% without indexation or 20% with cost indexation.
      3. For the long -term you should allocate money between equities, debt and some intl. funds. This is an ideal time to start investments in a phased manner through SIPs.
      For more help on portfolio building you may use our ‘Ask Advisor’ feature (available for all FundsIndia investors free of cost).

    1. Hello Bhargav, Pl. check FundsIndia’s website for liquid funds. Liquid funds do not have any lock in Thanks, Vidya

  48. Hi Vidya,

    Very good article and associated comments. One addition from my side: Although the DDT is 28.33%, but it really is close to 22% since it is applied on actual dividend distributed. To take an example, if growth option had an increase of Rs. 100 per unit, then fund house will distribute about Rs 78 as dividend and pay Rs 22 (28.33% of 78) as DDT. Hence, it is way better than growth in case of 30% bracket (30.9% tax) and closer to 20% bracket.

    I also have a question: Usually if we invest till 12:30 on any particular day, liquid funds are bought at previous day’s NAV. However, how does it work in Dividend re-investment scenario? Does it mean that my benefit of previous day NAV is lost, or that I also get dividend for yesterday reinvested at the time for first purchase?


    1. Hi Mahesh, I will have to disgaree with this calculation which is being highlighted by some in the advisory circles.

      This effective DDT used by planners is a theoretical calc. Look at it this way. Let us assume you have a liquid fund under dividend option. Currently DDT plus SC plus cess is 28.33%. Let us suppose you bought the fund at nav of rs 100 and it has grown 15% to 115. Now assume the fund declares rs 10 as dividend. That means Rs2.833 (28.33% of 10) will be deducted as DDT from the NAV. The NAV falls to 102.167 (115-10-2.833). Now theoretically assume that you sell at this point or simply calc your yield at this point. What is the money you totally get? it is 102.167+10=112.167. Hence yield is 12.167/100*100= 12.167%
      Now do the math by taking the gross return of 15% less effective DDT of 22% stated by you. what is the yield? it comes to 11.7%. Now this is incorrect because the actual returns post tax (as calculated above) is 12.167%.Hence, when you back work the so-called “effective yields” it is more important that it tallies with actual cash flows.
      Your question on liquid funds: liquid funds bought before 1 pm will receive same day NAV and not that of previous day.

      1. No Vidya, it is incorrect “math” on your part. You are not factoring the capital gains tax on 2.167. Assuming 30% bracket (only then you’ll choose dividend reinvest option), it is close to 1.5 after tax. So effective yield is 10 + 1.5 = 11.5 which is slightly less than 11.7%. The difference as you very well know is that you had some part of yield as growth option 2.167 on which you paid tax.
        The best way to invest with dividend reinvestment is to choose daily dividend reinvestment instead of weekly or monthly so that capital gains 2.167 as in your example will never arise.

        It is important to guide people correctly by choosing actual examples and not “theoritically” because this is not how dividends are declared in liquid funds.

        1. Hello Mahesh, yes in the dividend case I did not take CG. But even if you did, you will find that back working will not yield you the same number, suggesting 22% is not the effective yield. Take the practical example you gave (where there will be no CG) in dividend reinvest and back work with cash flows. You will find for yourself that actual yield does not match. Daily div. reinvestment is not needed unless one is an institutional player playing in lakhs and crores. thanks, Vidya

  49. Dear Madam, I want to create an emergency fund of mine. I find myself not being able to save enough from my saving account. After reading your article I am thinking for starting a SIP of liquid fund so that I can get money as and when I need it. Can you please suggest me any good liquid fund which will permit of rs. 1000 per month.
    I am in 10% tax bracket now.

    1. Hello Aditya,

      thanks for writing in. Yes, it is a good idea to have a liquid fund for contingency purpose. But pl remember that in unusual periods such as in JUly liquid funds did see a short dip, although they bounced back in a matter of week. All we would like to tell you is that liquid funds do not make losses if they hold their underlying instruments till maturity. Hence, if such an event happens do not panic. Quite a few liquid funds do not offer SIPs hence we will go with a good one that allows SIP – HDFC Cash Management Savings. If you are in the 10-20% tax bracket go for growth option. If you are in the 30% bracket go for dividend reinvestment option. the above holds good if you will withdraw money within a year. if you will hold for more than a year then simply go for growth option.In future, pl. use the Ask Advisor feature in your account (click help tab) to seek our advice. This will help us track your queries and our responses in a more systematic way than using the blog for portfolio advice. Thanks, Vidya

  50. Hi, I want to know the difference in tax for Liquid fund and short term dept fund. i am in 30% tax bracket. If I invest x amount in Liquid fund and same in short term fund bond fund, how will the tax implication be different 1) in case kept for 6 month, 2) in case kept for more than 1 year. Please guide.

    1. Hi Sanjay, The capital gains tax treatment is the same for liquid and short-term funds. For less than 1 yr it is taxed at your income tax slab. For more than one year, it is 10% without indexation or 20% with indexation. tks, vidya

      1. Hi Vidya, Thanks for your reply. I want to know the difference in DTT for liquid and short term fund as mentioned in the article ” Liquid funds suffer DDT of 27.04 per cent (deducted at the AMC end, including surcharge and cess) but for ultra-short term funds it is only 13.52 per cent.”

    1. Hi Shweta, yes you can. Only in the rare event of a fall as was the case in July, you may have to hold for another week or 10 days to recoup such a fall. Tks Vidya

  51. hello vidya ji, I have invested in Reliance long term equity growth mutual funds in 2011. my question is, how long we should keep this mutual funds for good returns. thank you !

    1. hello Bhumika, A min. time frame of 5 years and preferably SIP mode of investing is required for any equity fund. Thanks.

  52. Hi Vidya,

    Is it better to invest in FMP or liquid fund growth option for invest horizon above one year considering returns & tax treatment.

    1. Hi Rakesh, View liquid funds as a temporary parking ground for your money and not an investment. FMPs will score over liquid funds as investment options as they lock into rates of instruments prevailing at the time of investment. for a liquid fund, this will be floating. Thanks

  53. A very useful and nice Article.

    I want to park my NRE funds for short term (less than a year) . It could be for 3 months or 6 months but would not cross one year.

    Does any options are available in India to park NRE funds for ultra-short term to earn tax free interest over and above bank savings interest rate of 4%. As you know Banks requires at least a year of deposit to give the interest?.

    Seems one such option is to go through MF debt funds which I did. However they deduct TDS at max rate. So is it possible to earn more than 4%, no TDS or Tax liability for a period less than a year on NRE funds. Pls do let me know if you come across any such options.

  54. Dear ma’am,
    Wanted to park some funds temporarily.
    Between hdfc cmf taf dd and icici pru flexi income plan dd which is a better option.

    I am an NRI and fall in the 10 % bracket

    1. Hello, If you are a US/Canada NRI you will not be eligible to invest in the fund houses mentioned by you. The funds mentioned by you are ultra short-term funds. We will be constrained from giving you advice on funds. If you are a FundsIndia customer, pl. use the free service of ‘Ask Advisor’ available in your online account and our advisor will help you choose the right fund. Thanks, Vidya

  55. What would be the better strategy of investing around 3.5 lakhs for 6-12 months, max 2 years. I would like to systematically transfer money from the liquid/short term funds to my regular equity funds. As an aside please let me know if it is possible to transfer amount from one liquid fund to an equity fund of a different fund house, via Fundsindia. Please suggest some good funds for this timeframe.

    1. Hello Abhishek, 2 years is too short a time frame for equities. SIPs work only when averaging works (when there are ups and downs). And for averaging to work, you need to invest at least over a 3-year time frame systematically and then hold. a 6-12 month SIP can work, only if you are lucky to invest ina falling market (where you buy addl. units at lower costs) and we cannot be sure we are in one. You could, at best, take limited exposure to equities and allocate rest to short-term debt funds that fit your 2-year time frame. Pl. use our ‘Ask Advisor’ feature to help you build a portfolio based on your need. thanks, Vidya

      1. I guess I could not explain properly in my earlier comment. What I meant was, I already have few SIPs going on in equity MFs. What I intend to do is invest the lumpsum 3.5 lakhs in some liquid/short term fund and after some time do STP to the ‘existing’ equity funds. My equity investment time frame is very long term. So, for that I requested for some good quality liquid/short term funds for 6months – 2 yrs.

        1. Hello Abhishek,

          got your question now. Yes, you could use the liquid fund route. But choosing liquid funds would hinge on what ‘existing’ equity funds you wish to invest in. I request you to use the ‘Ask Advisor’ feature (click the help tab in your account) for a email/call back service from our advisors for this. It will help us keep track of your queries and also respond faster. We also refrain from portfolio recommendation to customers in a public blog. thanks, Vidya

  56. Hi,

    I have received my FNF and my gratuity amount which is near to 75k. I am thinking of investing 60k for temporary period of 3 months. How beneficial it is to invest in liquidity fund.

    Also, my main question is if the per unit amount is decreased due to fall in market will my principal amount be affected with that or I will still get my principal amount if I withdraw after a month.

    For eg: If I invested 50k for 3 months and there is a fall, still can I get my 50k amount back when I withdram after 3 months.


    1. hello Hitesh,

      there is no guarantee on the principal in mutual funds, if that is your question.

      However, with liquid funds, even if there is a fall, the loss id recouped in a matter of days to couple of weeks (depending on the fall) because these instruments are held to maturity. the loss is only a ‘market loss’ which is reversed when the fund actually gets the maturity amount from the instruments in which it is invested.
      Hence, to answer your question, if there is a fall just at the time of your withdrawal, you have to wait a few days more for it to be made good (but note that loses in liquid funds are exceptional and rarely happen).


      1. Hi Vidya,

        Thanks for the post. Really useful …

        I have selected the below three liquid funds for parking money which I can use for buying an apartment in near future ( could be from month to 6 month)

        SBI Premier Liquid Fund – Regular Plan (G)
        Morgan Stanley Liquid Fund – Regular Plan (G)
        IDFC Cash Fund – Regular Plan (G)

        How do you rate these funds? If you feel any other liquid funds is better than the above, pls. suggest. My preference of selecting is to have min exit load and decent returns. I’m already in 30% tax bracket.


        1. Hello Babu, I suppose our advisors have responded to your query raised through Ask Advisor. Kindly use the feature to ask any of your portfolio specific queries. thanks, Vidya

  57. Hello Vidya,

    I read from the above about dividend, dividend reinvestment are better than growth for taxation in liquid funds. Is also applicable for NRI and investment from NRE accounts.
    Best Regards,
    N. Manikandan

    1. Hi Manikandan, Yes, taxation is the same for NRIs as well. However, 2 impediments. Many funds are now closed for US canada investors because of those country laws required these fund hosues to be registered with them. If you are not from any of those regions, then fine. Two. TDS is applicable for NRIs, although not there for resident Indians. thanks, Vidya

  58. Hello Vidya, A very good effort. Thank you so much!
    I have several doubts brewing for some time and amongst these are the following:
    1. I heard that MF investments are subjected to capital gains tax; will this tax be paid by the MF firm, or is it mandatory for me to include in my annual ITR?
    2. For MF investments that I lost, does the “capital gains tax” still be applicable on the final NAV?
    3. One of my investment is with Sundaram Gilt Fund and as per my understanding this fund is performing very good with 19% annualized return and low expense ratio. Should I use this fund for the parking of my lump some? There is no exit load as per my understanding, so I can exit anytime, and as per your article if I opt for dividend reinvestment my tax liabilities will be very low.
    4. I understand gilt fund is a kind of debt instrument and debt are very low risky in comparison with equity. But I see brown color in my investment with sundaram gilt fund. What would the reason be?

  59. Hello Vidya,
    I had a SIP in HDFC Top 200 which ended in Dec 2013, I intend to start an SIP is a different MF. The units accumulated in HDFC fund – can I switch to an Liquid fund (eg HDFC Cash mgmt Savings (G)? What option should I use to minimise my tax outgo? Currently I am in higher tax bracket. If I intend to park the amount for more than a year, would I still be liable for STCG? Please respond at the earliest. Thanks in advance.

    1. Hello Girish, you can switch to liquid fund but note that all the units in your equity fund have not completed a year. Hence, they will incur STCG. Also, if you completed equity SIps only in Dec 2013, you should give it time to perform – at least a year or 2 after SIPs stopped. Equities, after all are not short-term investment channels. As for moving to liquid fund read this to know what option will minimise tax: thanks.

  60. Hi

    What is Taxation rules for NRE account holder and investing through his NRE account into mutual funds and also tax rules for liquid funds. Is ther any difference between rules for NRI and NRE ? Please explain. I want to invest in liquid fund for few months for parking money. what option I should choose for NRE ?

    1. Hello Harshal, For NRIs TDS is applicable for short-term capital gains for equity funds (long-term exempt) and both short and long-term capital gains for debt funds, which includes liquid funds. If you are an NRI from US/Canada very few fund houses allow investment due to restrictions in the 2 countries. For other NRIs, all funds are available. There is no seprate NRE status for tax purpose…it is only an account classified for banking purpose….Non-resient external account. NRIs can invest through NRE or NRO account, although latter is easier for transacting MFs. Fund specific advice si available if you are a FundsIndia account holder. You may use the free advisor appointment feature then. thanks, Vidya

  61. Hi
    I want to invest 10000/- in liquid funds. I want to invest in ICICI Prudential Liquid Plan (G). Can I go ahead in this plan or any alternatives? Please suggest me in this regard

    1. Hello Surendra, we need to know your time frame, requirement etc. Also, advice is given to investors in the platform. if you have an account with us, I can ask our advisors to contact you or you can use the advisor feature in the help tab of your account. Else, pl. open an account to enable us to help you. It is a free account. thanks, Vidya

  62. Hi Vidya,

    there is a change in tax structure for MF in this budget. Please let me know how it will affect MF investor? What will be impact on Liquid fund taxes? will this change in tax affect investment made few months back in liquid fund also? I know you need to go through the detailed budget copy for this, please inform when these clarity available.

  63. ICICI Pru Gilt Fund Investment Plan PF Option Regular Grow, I have invested 2 months back, huge loss of Rs 1000/- on investment of Rs 60k. as I redimmed those. Was that a bad decision ?

    Were should I invest to recover this loss

    1. Hello Shailesh, Having chosen a gilt fund, you should be willing to take short-term volatility and also have at least a 3-year view. That is the kind of time frame such investments require. Kindly use you FundsIndia account, if you have activated it, to raise a query with our advisors (use the help tab, advisor appointment) and they will suitably advice you, based on your investment time frame and risk appetite. thanks,

  64. hi

    i have an amount of 30k as FD in SBI at a rate of 9% which is also at my disposal (means i can withdraw it any time with my ATM).
    please tell me what will be the implications of investing it into a liquid fund/ultra short term fund, means will it be profitable than the FD? should i chose the growth one or divident reinvestment one? what will be the tax deducted in both types of fund in terms of the DDT, SCGT, etc
    (i come in the 10% tax bracket)

    1. Hello Tabish, sorry for th delayed response. First, liquid fund should be compared with SB rate as their primary purpose is to provide liquidity. Right now, they do beat FD rates but may not do so when rate cuts happen. But they will continue to fetch higher than SB rates. If you are in the 10-20% tax bracket go for growth (since effective DDT will 25% plus cess plus surcharge) An debt fund (including liquid ultra short) will be taxed at your slab rate if held for less than 3 years. For holding more than 3 years, you get indexation benefit. thanks, Vidya

      1. HI

        1. Hi

          If you opt for growth option in Liquid and Ultra short term fund, you may need to pay a short term capital gains tax for withdrawals up to 3 years. It is based on your income tax slab(Nil,10%,20% or 30%)


  65. Hello, i want to invest in liquid funds for investing through STP. I have at present 20k on hand. My question is

    Whether can i open STP account for 3-4 yrs and deposit more money in future as and when required?
    Can i deposit the money slowly ie 10k at a time and add more later, as we do for sips through bank accounts?

    1. Hello, yes you can. As long as the ‘from fund’ from which you are transferring has sufficient money to meet your ‘to’ fund that is where the money is going. Vidya

  66. If I invest 1 lac and do STP of Rs 2500 for 40 months towards diversified mf. Should i pay short term capital gain for the appreciation in liquid fund.

    1. Hi Nilesh,

      If you mean the ideal time of holding, it wouldbe 6 months to 1 year for ultra short. thanks, Vidya

  67. Hello Dear Vidya,

    I have some lump sum amount in my SB which I can hold it for 3 to 6 months, so instead keeping under SB I want to park this amount into Liquid funds or ultra short-term bonds. Could you please advice on this and also suggest good performing funds at this time to till next 6 months. And also please suggest on which option should I go for, either dividend payout/reinvest or growth? I fall under 20% IT slab. I am a FundsIndia account holder and same advice I asked thru Fundsindia website under Advice link but the support ended with providing some general FI link and no specific suggestions.
    I am impressed and in love with your advises on the investments, hence putting my question here. Hoping for your reply soon.
    Thank you, Shri

    1. Hello Sir,

      First, apologies for not receiving a proper response from us. I hope you used the ‘Help’ tab and clicked the ‘advisor’ appointment section. If you do not receive a proper response through that channel in future, let us know.
      You can consider liquid funds such as Franklin India Treasury Management Account or Birla Sun Life Floating Rate Short Term. Please do not expect current high returns over next 6 months. In very short-term debt, with rate falls, the returns too will dip a bit (especially post March when liquidity usually eases). But it will still be far superior to savings account. If you are under the 20% slab rate, you should definitely go for growth option as dividend distribution tax will be higher than your slab at 28.33%.

      thanks & regards

      1. Hello Vidya,
        Thank you for a quick response,
        Yes I gone through the same channel for support but ended without much details. Any how in future I hope will get a detailed response through that channel.
        On my investment query:
        1. I am sure that I will not withdraw my money for min 3 months, so still shall I go with Liquid funds or are there any short-term debt funds with not having exit load beyond 3 months.
        2. I have 2lacs so can go with splitting this amount for 2/3 funds? Can you also suggest the funds also, i.e. if I want to go with liquid funds; 2 or 3 liquid funds OR if I need to go with short-term debt fund then 2 or 3 short-term debt. It will be a great help.
        3. Also can you explain little about what return benefit I get from short-term debt over Liquid fund or vice-versa?

        Thank you again

        1. Hello sir,

          I have asked our support to look into the reason for lack of response. To answer your question: In general, I do not recommend ultra short-term funds (short-term debt funds are different and need 1-2 year holding) for less than 6 months; reason why I suggested liquid fund. If you are particular – you can go with Franklin India Ultra Short Bond and ICICI Pru Flexible Income split equally. Neither of these have exit loads. 2 funds should do.
          2. Liquid funds – split between the 2 we suggested earlier.
          3. Ultra short term funds invest in slightly higher duration instruments and in instruments that may be one notch higher in risk than liquid funds. That means their returns potential too would be slightly higher.
          Hope this helps. Let me know if you need further assistance. One of our advisors to talk to you at your convenience.

          1. Thank you Dear Vidya,
            It’s okay on adviser assistance as now I am clear with where to park my money based on your valuable feedback. I really appreciate your support and hoping the same in future in case of any such queries.
            Thanks again,

      1. Hello Sir,

        Apologies. Looks like the comment was approved and not responded to. Since you are a FundsIndia investor, it will be good if you can use your account – click the help tab there and use ‘advisor appointment’ where you can just mail your query. That will create a tracking system for us and ensure we respond on time. The blog is more a public discussion forum.
        To answer your query, yes, every STP until 36 months (up to 3 years all debt holdings will have short-term capital gains tax) will suffer STCG. for the last 4 months (of the 40 months you mentioned) alone, you can get indexation benefit.
        thanks, Vidya

  68. Dear mam,

    i am Trader in APMC,
    i am repeatedly facing the situation like, to have the large idle cash(5-10Lac) for 7-30days and again i need it totally or partially after few days and again getting idle cash so…on…

    i cant use saving ac for getting 6-7% annual return. i have to keep it in current ac.

    please suggest any investing instrument which suits me better.


    tejash patel
    084518 08677

    1. Hello Tejash,

      Yes, you can park your surplus in liquid funds but do know that the gain will be taxed. Pl. write to us from your FUndsIndia account (if you already have one), if you would like us to help you with the choice of liquid funds. regards, Vidya

  69. Hi,
    I know Reliance AMC offers ATM card. Can you let me know if any other AMC also similar facility.

    T Venkatesh

  70. Hello Vidya,

    Pls provide the comparison between Equity fund vs Liquid fund in terms of profit.

    I understand if we redeem units before 3 years lock in period (say within year) in Equity fund then 1 % Exit load will be charged but still the gain will be always higher than that of any liquid fund if exited in same duration even though no exit load.
    Then why should we choose liquid fund? Pls clarify

    Also how good below two funds for investment?
    Franklin India Ultra Short Bond Fund(G)
    Tata Money Market Fund- A(G)

    1. Hello Sir, Sorry for the delayed response. I will raise your query as a ticket and respond to it. It will reach your mail. id. In future, for any portfolio queries kindly use the advisor appointment feature in the help tab of your account. Your query will be responded to or you will receive call from an advisor. This mode will help us keep tab of your queries and also the response we gave. The blog is more of a public discussion forum.Vidya

  71. Dear Vidya ,
    Many thnx for all your pain staking answers to so many querries !
    I had a hot discussion with my CA couple of days back regarding DDT on Liquid / Debt funds . As per his opinion , no DDT is paid by AMC on dividend paid and he had deducted 30.1 % on all the previous div received till now . But I am doubtful whether the rules have been changed now for this option as to the AMC not paying DDT ? Was taxing the Div clubbed wrong on his part ? and if so how can one claim the loss occurred ?

    1. Sameer,

      Sorry for the delayed reply. for all debt funds, including liquid funds, DDT is indeed deducted from the NAV and paid by the AMC. You SHOULD NOT be paying anything from your dividend. Please correct your auditor. It is unfortunate. If you have paid this at the time of filing, my understanding is that you can file a revised return, claiming a refund. Please use the Income tax helpline and check this or mail them..they usually respond promptly these days.
      This practice of DDT directly deducted by AMC has been in vogue for many years now and nothing has changed save for the higher rate of DDT.

  72. hello vidya,

    i am a first time invester have put lumpsum amount of around 90k in ELSS growth scheme by Axis bank as was done by other researching more into mutual fund schemes..i came to know about SIP. Even the bank didnt guide on SIP scheme. would that be a mistake considering market now is at peak…and later can fall?

    also i have some 2 lakh cash surplus and i am in 20% tax bracket. Shall i choose liquid fund scheme or FD considering 1 year tenure and current low interest rate scenerio?

    As market is on peak, would you advise to invest in equity scheme as i have committed blunder already by putting lumpsum amount?


    1. Hello Sir,

      Apologies for the delayed response.
      I would suggest that you use your bank for banking purpose alone and ot for MF advice. they are neither well-equipped nor is it their primary role to provide advice. Consider using a platform like FundsIndia. Also, please note that we would be able to provide specific advice suiting your needs only if you are a FundsIndia customer. We are constrained from doing so in a public forum (blog). Liquid funds are used to park surplus temporarily..generated returns higher than savings bank. They cannot be compared with FDs. To compare with FDs, you should be considering short-term debt funds, given your time frame. Your bank is unlikely to tell you this since in their own interest, they would require you to park the money in FD. If you have a very long-term time frame (not less than 5 years), then do not worry too much about investing lump sum. However, as a disciplined savings habit, run SIPs and see how it works wonders over 10-15 years periods. Doing it online with platform like FundsIndia will help you track and also get it reviewed (by checkign with our advisors any time)annually on how the fund is doing and thereby stay on track.

  73. I have 3 lakh rupees & if I invest the money in liquid fund & withdraw partly ( 50000/-) monthly , I can expect any return on that 50000/-

    1. Hello Sir,
      Liquid funds earn return every single day of the money remaining invested. For the Rs 50000 you will withdraw, as long as it is invested, you will earn returns.

    1. Hello Sir, It is not really tax free. Just that it is not taxed in your hands. It is paid by AMC and deducted from your NAV. thanks, Vidya

  74. I am an NRI of Dubai, I have 4 Lakhs invested in Liquid plus funds of Reliance Money Manager , SBI Treasury Advantage, Birla SL savings fund & DSP BR Money manager fund…Daily Div. Reinvest. Now, if I make STP of Rs.10000/- p.m. in Equity Schemes – Growth option, will I be charged with any TDS deductions??

    Because as in daily dividend option almost DDT is deducted on dividends daily.. So there will be no STCG in Money Manager Funds…

    If after transferring to Equity Schemes, If I redeem anytime after 1 yr, No LTCG will be there..Am I correct??????

    Request you to pls provide me guidance…

    1. Hello Sir, if you redeem from your equity scheme after 1 year, there will be no capital gains tax. But the one year is for each instalment..from the date of such money entering the equity fund every month, if it is an STP. thanks

  75. Also let me know, if I opt for Growth option in Money Manager Fund and I switch or make STP to Equity Schemes, what TDS will be deducted from short term return generated from such Liquid Plus funds……..

    1. Hello Sir, As an NRI – TDS on short-term capital gain on debt funds will be at the max slab rate (30% plus cess) respective of what slab rate you are in. Y

  76. So what type of financial institution is fundsindia?is it a bank or simply company which runs investments on its own?what is its credibility?as am a foreign investor how can i guarranty my money wont be vanished

    1. Hello,
      We’ve answered your queries one at a time:

      1. FundsIndia is an online investment platform. We are a SEBI-registered broker for mutual funds, and we offer stocks from the Bombay Stock Exchange (BSE), fixed deposits from corporate houses, and more. So, we aren’t a bank, and neither do we sell “our own investments”. By creating a FREE-for-life account with us, you get access to all the mutual funds from all the AMCs in India, stocks from the BSE, and other investment products in one convenient online location. You get this and more through our unique value-added services. (You can know more about us here –

      2. Credibility – We are registered with regulatory authorities like SEBI, AMFI, CDSL, BSE, CIBIL and CIRL. At the outset, we are a well-founded company with a sound business model, and excellent financial backing. We will be here to serve our customers for a long time to come. However, keeping our investors’ interests in mind, we’ve made sure that all investments – mutual funds, equities, deposits, etc. – made via FundsIndia, are made entirely in the name of the investor. These investments will be fully and freely available for direct access by the investor at any time, should something unfortunate happen to us. As our customer, you do not need to worry on this count at all.

  77. So what type of financial institution is fundsindia?is it a bank or simply company which runs investments on its own?what is its credibility?as am a foreign investor how can i guarranty my money wont be vanished

  78. Hello,

    I am interested in buying Franklin India and axis equity funds , now my question if I move to US or Canada in a year or two should I sell out the units before I leave to the country or can I hold my funds and sell it later After many years ..

    Regards ,

    1. Hello Sai, sorry for the delayed response. You need not sell the funds. You cannot buy more. Vidya

  79. Hello Vidya,
    I’m 30 years old. Please review my Mutual fund portfolio and suggest me if any corrections to be made in it…

    – SIP Details as below(Monthly Basis)
    1)Franklin India Tax Shield – Growth – 2000/-
    2)Axis Long term equity fund – Growth – 2000/-

    Large Cap
    SBI Blue chip fund – Growth – 2000/-

    Mid Cap
    Franklin India Prima fund – Growth – 2000/-

    Small Cap
    Franklin India Smaller companies fund – Growth – 2000/-

    ICICI Prudential value discovery fund – Growth – 2000/-

    Balanced funds
    1) HDFC Balanced Fund – Growth(Equity based Balanced Fund) – 2000/-
    2) HDFC MIP LTP – Growth(Debt based Balanced fund) – 2000

    Debt Fund
    Birla Sun Life Short term fund – Growth – 5000

    Is it good and wise decision to continue above mentioned SIPs for next 10 years?
    My Goal is to have 50 Lakh Rs Liquidity cash after 10 yrs.
    Please suggest me if any changes required in my portfolio and kindly suggest me to buy some other safe mutual funds to balance risk if I would have taken high risk by opting above mentioned funds.

    Please suggest me good liquid funds to park my emergency fund of 2 lakh Rs. I come under 30% tax slab. so dividend reinvestment would be good choice?

    1. Hello Rajesh,

      Appreciate your taking time to write here. We are constrained from providing any individual portfolio reviews/recommendations through this public forum. If you are a fundsindia investor, please route this query through our account, using advisory support feature under help tab. I presently see that you have not activated your account yet and therefore none of these holdings are here. Please activate your account and use it t benefit from our services and use the said feature to ensure we keep track of our responses and also respond to your queries efficiently. Thanks, Vidya

  80. Dear Vidya,

    Thank you very much for your reply. Certainly i will create account in fundsindia to make use of advisory support feature.

  81. Is it a good strategy to sell your investments in liquid fund (dividend reinvestment option) within 1 year (say after 11 months from starting) and again re-invest the same to avoid long term capital gain? This way we avoid short term as well as long term capital gain and also do away with complex procedure of calculating capital gains while filing IT return.

    1. Anup – the law has no changed to 3 years for long-term and short-term being less than 3. Please note that youa re not escaping any tax in dividend reinvest option as dividend distribution tax (28.33%) indirectly goes away by way of reduction in your NAV, everytime dividend is declared. Hence the strategy you stated will nto really help expect that you do not have to pay, it would be deducted already, Thanks, Vidya

  82. Hi Vidya

    I have gone thru your various suggestion of mutual funds

    i am look for to invest in best liquid fund for short duration . Kindly suggest whether liquid fund with amount of Rs 20000 can fetch moderate return in a weeks time or how many days we can keep liquid funds in fund account. to start with can i keep funds for a weeks time and can we get some good returns if scheme is good

    rajendra kumar

    1. Hello Rajendra Kumar,
      liquid funds will fetch better returns than your savings account balance. You can keep it for a week to any number of months.


  83. Hi there,

    My finance holds an NRO account is looking for options for investment. There is a good amount of idle cash in the NRO account. Do you think moving the cash into liquid fund is a good option for approx 1 month?

    Thanks in advance!

    1. Yes, it is possible. If the NRI is from US/Canada, there are limited fund options to invest in. If the NRI is from any other country, then it is not an issue.


      1. Hi vidya
        I will like to invest in this liquid fund an I want to know the minimum amount to start with an account with that minimum amount what is my return

        1. Kessy, Minimum amounts vary across funds. Returns too are not fixed. If you have a FundsIndia account, please write to us us through the advisor appointment feature or call us and we will understand your requirement before providing suggestions. thanks, Vidya

  84. I am doing SIP in Axis Long Term equity fund since last 2 years. ELSS funds having 3 years locking period.
    Every SIP installment is considered as fresh investment..
    So it would be total locking period of fund may be 6 years considering last installment of SIP?

  85. In your article, you have mentioned the following:

    How to be tax efficient

    You may view liquid funds as inefficient tax vehicles as they suffer from short-term capital gains tax (at your regular tax slab) if held for less than a year. Hence, if you are in the high tax bracket, this does hurt. But there is a more efficient strategy to handle this.

    Would you please help me in advising such efficient strategies to invest in this product.

    Sanjay Mulchandani

    1. Sanjay,

      The tax rules have changed in debt fund. Short-term capital gain period is now 3 years instead of 1 year. As for being tax efficient,the best is to stick to growth option if you are in the 10-20% tax bracket. If you are in the 30% tax bracket, you can consider dividend reinvestment option (as DDT is 28.3%).


  86. I recently retired from government service and got retirement kitty. I want to invest lump sum in some MF debt, liquid funds and want to trasfer through STF to balanced funds. Please suggest any ideas more and recommended funds.

    1. Pradeep, Thanks for writing to us. We need to understand your requirement of income etc before giving suggestions. If you are a FundsIndia investor, write to us from your account or talk to your FundsIndia advisor. If not, please open an account as it is free and you will have a team of advisors helping you. thanks, Vidya

  87. Hi,

    ICICI Prudential Gilt TP PF has a sudden spike of 1yr return. And is higher than its peers in the same category. 1. Do u see any reason for it being high? 2. As it is a debt option and it is giving highest, is it still safe to invest more in this fund or exit now?


  88. Hi
    I have surplus funds of around 2.50 lakh and would like to invest the same for short duration of 3 to 6 months in mutual funds as those funds would be required after six months. So in which type of mutual fund do I invest the same? And what will be the effect from taxation point of view when I wanted those funds back?
    Kindly guide.

    1. Hello,

      Sorry for the delayed response. Liquid funds can be your option. You will be taxed at your income tax slb rte on the gains made when you sell the fund, if you sell it in the time frame you have stated. thanks, Vidya

  89. Hi,

    I’m coming under 20% tax bracket.

    I have a 2 lac FD which is earning 8.1% interest

    I may or may not require the fund within an year.

    1). Please let me your opinion (other suggestions if any) on me choosing a liquid fund at the moment with daily dividend reinvestment option.

    My FD is earning Rs.13,000/- after tax in an year.

    2). How much will I earn from liquid funds with the present rate of return after one year (after every cut) for the same amount?

    1. Hello Lijoy, Sorry that we cannot make any forecasts on returns. Liquid funds continue to earn a notch more than FDs. But liquid funds cannot be compared to FDs..they are more comparable with savings abnk. If you want a higher chance of beating FDs you should go with ultra short-term funds or for a slightly longer tenure (1-2 years) with short term debt funds. thanks, Vidya

      1. Hi Vidya,
        Thank you for the reply.

        I understand that it is not possible to make any forecast on market related instruments.

        I just want to know the present rate of return the liquid funds are displaying- for example Axis liquid fund’s last one year return is 9.7%. – would I have earned 9700 after tax for 1 lac rupees investment?



        1. Lijoy, the category returns is only around 6.7% and it will go down if interest rates fall any further. thanks, Vidya

          1. That’s alright!

            The fund houses are showing last one year returns from liquid funds.

            If I had invested 1 lac rupees at this time last year, would I have earned the so called returns tax free?

          2. Hi Lijoy,

            Apologies for the delayed reply. Returns shown will always be pre-tax, unless otherwise specified. This holds true even for FD interest rates.


  90. Hi Vidya,

    Currently i wanted to invest 50k on Liquid funds with for short term/period (6 month – 1 year)

    please advice


    1. Hello Sir, For fund specific recommendations, please write through your FundsIndia account, if you are a customer. We are contrained from giving advice over the blog. Thanks, Vidya

    1. Hello Sir, Different funds have different minimum limits. Lumpsum amounts usually start with Rs 5000 with liquid funds. Thanks, Vidya

  91. Dear Vidya Bala

    ..I have purchased NCDs during Jan to May 2017 from open market .

    They are due for payment..Maturity in Jan 2019.

    I would like to know what is the Tax on this transaction ?


    In Oct 2014 I had invested in 150 NCD .– for 3 year period.

    The maturity is in Oct 2017.

    But in 2017 I have added 48 units and the total is -150 plus 48=198 which is due on Oct-2017

    How is the Tax calculated on 48 Units ?

    Asif Adeni

    1. Sorry for the delayed response.
      The interest on NCDS will be added to your other income and taxed at slab rate. When the bond matures (assuming you don’t sell0, if your buy price is lower than the maturity value, then you will have LTCG of 10% plus charges.

      On your second question, for the 48 units it is STCG if your buy price is lower than the sale value and you will need to pay STCG at your tax slab.


  92. Hi Vidya
    thanks for the informative posts and time you take to answer questions. Hope you can advise on my question. For a NRI based in africa who is looking to invest 30Lacs within next 5-10 days in Balanced fund with a 10yr time horizon:
    1) would you recommed a lumpsum investment or putting funds in a liquid fund and doing a monthly STP for next 1 or 1.5 years ? Is there an anticipation of market correction in next 12-24 months that would make STP an advantageous option to get lower average nav costs ?
    2) in case of STP option what is the tax implications .. I currently only have NRE fixed deposits so dont file taxes in india. Since liquid fund STP is a STCG redemption how much tax will be deducted by TDS and do I need to file india tax if my income (excluding nre fixed deposit) is less than 2.5lacs ? Would appreciate your advise on how STP may impact tax filing requirement

    thanks !

    1. Raj,

      Sorry about the delay in responding.
      1. STP is recommended over a 1% year time frame. There could be short intermittant corrections that are hard to time. Consider going with a weekly STP to average on such falls.
      2.TDS will be deducted at 30% and if you are not a tax payer in India, you will have to file to claim refund. But to keep this tax negligible or nil, you can consider going for daily or weekly dividend reinvestment option. That will keep your NAV close to your buy price. It is not as if there is no tax. Dividend has DDT of 28.3% and deducted from your NAV. But since this is not a TDS, you do not have to claim refund etc. Otherwise, the only way out is to clai refund on the capital gains on the liquid funds.

      thanks, Vidya

  93. Hi,

    I am going the get amount on maturity of my RD next month. As I need this money next year at the same time, what is the best option to park that money. Is it FD or any liquid fund. Could you suggest best liquid fund for this.


    1. Hello,

      Sorry for the delayed reply. Fund category has to be based on your time frame. Please get in touch with us through your FundsIndia account for us to understand your requirement and help you. We do not provide individual recommendations on the blog. thanks, Vidya

  94. Hi vidya, ihave made lumpsum investment in HDFCTreasury advantage plan for parking my money for buying a house.. Time period is 2-3years.. Should i continue with this fund??

    1. Sorry for the delayed response. You should go with a short-term debt fund if you have 2-3 year time frame. Please write to us with your FundsIndia account for specific suggestions. thanks, Vidya

  95. Hi Vidya,
    I have parked my fund in following liquid funds
    1) Kotak Liquid Fund-Reg(G) ( 24 months STP to equity fund)

    2) Mirae Asset Cash Management-Reg(G) (12 months STP to equity fund)

    3) SBI Premier Liquid Fund(G) (6 months STP to equity fund)
    and from there i am doing STP to other equity funds.I fall under 20% slab

    I have two questions
    1) For liquid funds which option is better, Growth or Dividend (reinvestment) for minimising the tax and why ?
    2) Instead of liquid funds , ultra short funds would have been better option for period stated above ?

  96. Hi Vidya, I am investing monthly in Aditya Birla Sun Life Equity Fund – Growth-Regular Plan Rs.1,500.00, Aditya Birla Sun Life Frontline Equity Fund -Growth-Regular Plan Rs.2,000.00, HDFC Top 200 Fund – Regular Plan – Growth Rs.1,000.00, OPGP – UTI-OPPORTUNITIES FUND – GROWTH Rs.1,500.00 Should I Continue the Investment or Change in Funds Please Suggest me

    thanking you


    1. Rakesh, Request you to kindly ask your queries through your fundsindia account, using the advisor appointment feature. The blog is not used to disseminate individual reviews. Thanks, Vidya

  97. I have 2lakh please tell me were to invest it for good return . And I have also invest in SIP of 1000 RS each in HDFC MID-CAP opportunity fund & HDFC top 200. And also want to do more investment. Please guide me.

    1. Hello,

      Apologies for the delayed reply. Please set up an appointment with your FundsIndia advisor (Talk to my advisor feature from your mutual fund dashboard) to get a portfolio that is suited for your timeframe and risk.


  98. I want to invest Rs. 3000/- monthly for 1 year. Please suggest some good investment plans. Thank you

    1. Hello Ruchika,

      Do you mean your holding period is one year, or that you can invest for the next one year and hold the investment for a longer timeframe? If your holding period itself is 1 year, go for liquid or ultra short-term funds at best. If its longer than that, then it depends on how long you’re willing to hold and your risk level. Please talk to your advisor for further recommendations. If you’re a FundsIndia investor, you can set up an appointment using the talk to my advisor feature on the portfolio dashboard.


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