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The COVID-19 pandemic and the economic uncertainty that came with it taught many of us, an important lesson that ‘Cash is King’. One must keep aside some money for emergencies or unforeseen circumstances. Holding an adequate emergency fund serves to be a financial backup and is in the interest of your financial well-being. You don’t need to dig in and utilise savings and investments perhaps assigned for vital life goals, viz. children’s future needs (higher education and retirement expenses), your retirement, etc. if a certain sum of money is held in a separate banks savings and/or a Liquid Fund.
What is a Liquid Fund?
A Liquid Fund is an open-ended debt mutual fund scheme, which according to the regulatory guidelines, is mandated to invest in debt & money markets securities with a maturity of up to 91 days only. Typically, a Liquid Fund invests in securities such as Certificate of Deposits (CDs), Commercial Papers (CPs), Treasury bills (T-bills), Repos/reverse repos in securities issued by central government and state government securities, G-secs, Fixed Deposits (FDs) issued by scheduled commercial banks, Tri-Party Repo (TREPs), and so on that mature in 91 days. Hence the interest rate risk and credit risk are relatively low. A Liquid fund prioritizes safety and liquidity over returns by predominantly investing in debt papers maturing in a short period. Among the sub-categories of debt mutual funds, a Liquid Fund is placed at the lower end of the risk-return spectrum. Note, the various risks carried by debt investments such as interest rate risk, liquidity risk, default risk, etc. apply even to a Liquid Fund but are minimised with instruments maturity till 91 days. The Quantum Liquid Fund is a liquid fund that prioritises safety and liquidity over returns and invests only in Government Securities, Treasury Bills, and AAA/A1+ rated PSUs. Quantum Liquid Fund has no exposure to private corporate credit risk papers. The portfolio is disclosed weekly, and the entire portfolio is marked to market daily to ensure that the declared NAV is 'real'.
What is the investment objective of a Liquid Fund?
Broadly, the investment objective of a Liquid Fund is capital preservation and ensuring liquidity. Thus, a Liquid Fund is to provide optimal returns with low-to-moderate levels of risk and liquidity through judicious investments in money market and debt instruments. The performance of a Liquid Fund is usually benchmarked against the CRISIL Liquid Fund Index.
The 5 key benefits of investing in a Liquid Fund
Low expense ratio
Compared to other debt mutual funds, the expense ratio (which is the fee to manage investments)...
Compared to other debt mutual funds, the expense ratio (which is the fee to manage investments) is much low, thereby keeping your cost of investment low.
Liquidity
You can redeem your investment in a Liquid Fund on a T+1 basis. In some cases, the instal-redemption facility is also available...
You can redeem your investment in a Liquid Fund on a T+1 basis. In some cases, the instal-redemption facility is also available (for a withdrawal of up to Rs 50,000 and the amount is credited within 30 minutes.)
Low-to-moderate
Risk
Since a Liquid Fund is mandated to invest in high-quality debt & money...
Since a Liquid Fund is mandated to invest in high-quality debt & money market instruments maturing in 91 days, the risk the investor is exposed to is on the lower.
Flexibility
Investment in a Liquid Fund can also be made via the Systematic Investment Plan mode––ideal to build a rainy-day fund (also known as an emergency fund). In case you need the money, it can be withdrawn whenever you wish to...
Investment in a Liquid Fund can also be made via the Systematic Investment Plan mode––ideal to build a rainy-day fund (also known as an emergency fund). In case you need the money, it can be withdrawn whenever you wish to Similarly, a Liquid Fund can also be used to make systematic transfers to equity mutual fund schemes.
Potential to earn
better returns
In a rising interest rate environment, a Liquid Fund has the potential to provide...
In a rising interest rate environment, a Liquid Fund has the potential to provide slightly better market-linked returns than a conventional savings bank account.
Best Liquid Funds in QAMC
Quantum Mutual Fund offers several mutual fund schemes in India that invest in equities, Gold, bonds, multiple asset. The company allows investors to start an SIP in any of its schemes with an amount as low as ₹500, besides offering an option to hold the units in the Demat mode.
An open ended liquid scheme. A relatively low interest rate risk and relatively low credit risk
Benefits of investing in Quantum Liquid Fund
Weekly Disclosure of portfolios
No private corporate credit risk
Marked to market daily to ensure that declared NAV is real
High porfolio liquidity and stable AUM trend
Invest only in Gov. securities, treasury bills and AAA/A1 rated public sector undertakings
The care to take when investing in a Liquid Fund
When you choose to invest in a Liquid Fund, do the following:
Read the offer
document carefully
It is essential to evaluate
liquid mutual fund returns across time periods. Do not invest in a liquid fund solely based on their past returns.
Assess the consistency
in performance across interest rate cycles
Check the credit ratings
of the debt instruments in the portfolio of a Liquid Fund; it can help you assess the credit risk associated with the fund.
Ensure that
the Liquid Fund holds a lower expense ratio, which maximises the returns.
Consider the fund manager’s
experience and the overall investment processes, philosophy, and systems followed at the fund house.
Apart from the above
check the investment processes and systems followed at the fund house
Evaluate the average maturity
Yield-To-Maturity (YTM) (measures the expected interest income generated by the bonds) and the Modified Duration (MD) of the portfolio.
How long does it take to redeem money from a Liquid Fund?
In the case of a Liquid Fund, the redemption or repurchase proceeds shall be dispatched / credited to the registered bank account of the unitholders within 3 working days from the date of redemption or repurchase. Quantum Liquid Fund also provides an insta redemption facility wherein redemption upto Rs.50,000 is credited to the investor bank account immediately. If you hold the units for 7 days or longer, there isn’t any exit load on your investments in a Liquid Fund. But if investment from a Liquid Fund is redeemed within 7 days, the exit load applies.
What Is the Tax impact of investing in a Liquid Fund?
If you (a resident Indian) receive any dividends from liquid funds, they are added to your total income. Then they are taxed according to your income-tax slab, i.e. at the marginal rate of taxation. Similarly, as per the current tax rule the capital gain arising at the time of redemption whether short-term (a holding period of less than 36 months) or long-term (a holding period of 36 months and above) is also taxed as per your tax slab. For NRIs, the capital gains on debt-oriented mutual funds are subject to Tax Deduction at Source (TDS) at the rate of 30% irrespective of the holding period.
Who should invest in a Liquid Fund?
Investment in a Liquid Fund is ideal for investors who are risk-averse or have a low-to-moderate risk appetite. So, if you have excess money which you wish to keep safe or for an emergency, you may consider investing it in a Liquid Fund. For emergency purposes, you may keep aside 12 months of regular monthly expenses in a Liquid Fund. The investment in a Liquid Fund would potentially earn slightly better returns than a typical savings bank account with market risk. But keep in mind that your priority should be the safety of the principal invested and not extraordinary returns. Hence, choose your Liquid Fund carefully. Speak to your investment adviser if you are in doubt about selecting a suitable fund.
Know more about Liquid Fund?
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What is Liquid Fund | Quantum Liquid Fund | Quantum Mutual Fund
In this video we will explain what is liquid fund and how investing in Quantum Liquid Fund gets you higher returns than keeping cash in bank savings account?
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Liquid Funds Decoded by Pankaj Pathak
Mr. Pankaj Pathak, Fund Manager - Fixed Income, talks about Liquid Funds, what their objectives are with regards to safety, liquidity and returns as compared to Savings Bank Accounts and elaborates on the Quantum Liquid Fund and the quality of its portfolio.
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Quantum Liquid Fund
Quantum Liquid Fund is suitable for investors whose objective is to invest their short term cash surplus and try to achieve slightly higher returns than bank current and savings accounts.
Product Labelling
| Name of the Scheme | This product is suitable for Investors who are seeking* | Risk-o-meter of Scheme |
|---|---|---|
|
Quantum Liquid Fund An Open-ended Liquid Scheme.A relatively low interest rate risk and relatively low credit risk. |
• Income over the sort term • Investments in debt/money market instruments |
Investors understand that their principal will be at Low Risk. |
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Disclaimer: The views expressed here in this Article / Video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The Article / Video has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of the Article / Video should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in the Article / video.
Mutual fund investments are subject to market risks read all scheme related documents carefully.
Potential Risk Class Matrix – Quantum Liquid Fund
| Credit Risk → | Relatively Low (Class A) | Moderate (Class B) | Relatively High (Class C) |
|---|---|---|---|
| Interest Rate Risk ↓ | |||
| Relatively Low (Class I) |
A-I |
||
| Moderate (Class II) | |||
| Relatively High (Class III) |
Frequently Asked Questions
Quantum Liquid Fund - QLF is an Open ended Liquid scheme which invests in money market and short term debt instruments.
It is an ideal tool for managing surplus cash. The advantage of investing in a Liquid fund is that redemptions can be available generally on a next day (T+1 business day) basis, which means you get your money back almost the next day after you have notified us for the redemption (subject to Ceteris Paribus conditions).
You can invest in liquid funds even for a day.
The primary investment objective of the Scheme is to provide optimal returns with low to moderate levels of risk and high liquidity through judicious investments in money market and debt instruments.
The Benchmark Index for the Scheme is the CRISIL Liquid Debt A-I Index. The Crisil Liquid fund is an index comprising of call money market rates and Commercial paper rates.
Since QLF would invest a large proportion of its assets in short term debt and money market instruments, the Crisil Liquid Fund would be an appropriate benchmark.
Mr. Pankaj Pathak (Since March 1, 2017) is managing the scheme.
Mr. Pankaj Pathak has overall 12 years of experience in debt market. Wherein 6.5 years in trading in fixed income securities, Economic Research and CRR / SLR management.
He has been with Quantum Asset Management Company Pvt. Ltd. since August 2013. Prior to joining Quantum, he was associated with Bank of Maharashtra.
He holds an B.Sc. (Electronics), degree and has completed his Post Graduate Diploma in Banking & Finance, passed all levels of CFA from CFA Institute (USA), JAIIB and CAIIB from Indian Institute of Bank Management.
The current expense ratio of the Direct Plan of the Quantum Liquid Fund is 0.16% p.a. and the expense ratio for the Regular Plan is 0.26% p.a. with effect from August 19, 2020.
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