Google+ Consumer Psyche: Liquid Funds


Tuesday, September 2, 2008

Liquid Funds

Liquid funds belong to the category of ultra short term debt funds. These can be used as alternative for short term bank deposits (deposits for less than a year).

1. They invest in debt instruments which have maturity of 1-2 months.

2. They have a lock in period of only few days unlike banks wherein you have to pay penalty if you preclose your FD.

3. They have a lower tax rate than a bank FD for a person in 30% tax bracket.The tax on dividend paid out is less than the income tax slab rate of a person in 30% tax bracket.

4.The interest rate varies with the market and it is a good option in a increasing interest rate scenario unlike bank FDs where interest rate is fixed.

5. They accept a minimum investment of 10,000.

6. These are suitable for investors who don want to lock in their money at banks for a shorter while but at the same time want to get interest on their amount.