LIQUID FUNDS

PREPARED BY:
KARAN CHADHA KUMAR LOVE LALIT MALIK LOVISH GUPTA MANALI AGGARWAL

WHAT DOES LIQUID MEANS

Liquid refers to availability of free cash Liquidity of an investment is defined in terms of the ability of that investment to be quickly converted to cash Example Short term bank deposit is most liquid instrument Real Estate or Mutual Fund with lock in of 3 years or more

LIQUID FUNDS

Liquid funds are open ended Mutual funds Invests Money Market Instruments Commercial Paper Certificate Deposits T-Bills Permitted securities under repo and reverse repo agreements Any other instruments permitted by RBI/SEBI from time to time

LIQUID FUNDS
Debt Securities Non Convertible Debentures Zero Interest Bonds Floating Rate Bonds Mortgage Backed Securities Other domestic fixed income securities Redemption in less than 24 hours

LIQUID FUNDS
Instrument Normal Allocation(% of total assets) 50-90 10-50 Risk Profile

Money Market Debt Securities

Low Low to Medium

Types Dividend Growth

FEATURES
No Entry Load No Exit Load Low annual fee 0.3 to 0.7 % Dividend Payment Easy Liquidation Short Lock in period mostly 3 days

HOW TO BUY
Units of these funds are bought and sold at NAV A fund's NAV fluctuates along with the value of its underlying investments. The formula for NAV is: NAV = (Market Value of All Securities Held by Fund + Cash and Equivalent Holdings - Fund Liabilities) / Total Fund Shares Outstanding

NAV
Let's assume at the close of trading yesterday that the fund held Rs10,500,000 worth of securities, Rs2,000,000 of cash, and Rs500,000 of liabilities. If the fund had 1,000,000 shares outstanding, then yesterday's NAV would be: NAV = (Rs10,500,000 + Rs2,000,000 Rs500,000) / 1,000,000 = Rs12.00

SAVINGS DEPOSITS
Deposits of 90 days offer return of 3.5 percent Earning taxable as per the income slab of the individual Fixed rate of return TDS 10 percent

SAVINGS Vs LIQUID FUNDS

Suppose an individual earns more than 8 lacs per annum Return on investment of Rs 10000 in either avenue Suppose both the instruments earn 10% return per annum

SAVINGS DEPOSIT
Amount 10000 Tax Rate 30.9% Tax payment 309 Earned Interest 691

Tax Rate (30% and educational cess 3%) Effective yield of 6.91 %

LIQUID FUNDS
1000 units bought at NAV Rs 10 Earns Rs1000 which means NAV will change to Rs 11 Now liquid fund will payout Rs 1000 as dividend Dividend Distribution Tax 28.35 percent(includes surcharge,cess) Will maintain the current NAV

LIQUID FUNDS
Amount 1000 Dividend 779 Tax Paid 221 DDT 28.35

Effective yield 7.79 percent

SUMMARY
Fixed Deposit Returns on investments range between 4-5% The interest on Fixed deposit is taxed by adding it to the assessee's income. Long Tenure Returns are fixed Not dependent on market performance Liquid Funds Returns on investments range between 5-8% If you opt for a dividend option the dividend is tax free in the hands of the investor Very short tenure Returns are not fixed Dependant on market performance

THANK YOU