Liquid funds - Charges and taxation

Hi Pankaj, I read on some websites that charges on liquid funds vary between 0.3%-0.7 % and on other websites I read that there are no extry/exit load or allocation/maintainence charges on liquid funds. Which one of these two is correct. Suppose if I invest Rs 5 Lac for 15 days in a Birla Sun life cash plus -Institutional Premium Plan-growth, what will be the charges on this (please tell me about any and every charge that might be charged) Also, are the returns from a liquid plan taxable? I read on a webpage that in case of growth plans the returns are taxable as per the individual tax bracket and in case of dividend plan, the tax is deducted before the payout of dividend by the bank. Some other websites say the returns are tax free. This is really confusing. Kindly help me understand with the same example as above.

Thanks & Regards, Aditi

asked Jun 27 '11 at 20:43 by Adi 1112


Charges like 0.3-0.7% are fund management/operating expenses. Mutual fund company take out some amount from investment for their salaries, operation and marketing costs. This is different that entry or exit load. This charge is not deducted directly from investment amount but same is adjusted in NAV (net asset value) of fund. There is no entry or exit load on BSL Cash Plus Inst Premium-Growth but minimum investment is 5 crores.

If you sell liquid growth funds before a year, all gains will be added to your taxable income. Dividends on liquid fund attract dividend distribution tax (payable by mutual fund company) before payment to investor. Investor does not have to pay tax on dividends from liquid funds.

answered Jun 28 '11 at 17:51 by pankaj 5.2k320

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hi Pankaj, Thank you for your reply. Is it true that funds investing in government securities are more volatile in short term than those investing in corporate papers? Can you suggest some good funds? I am looking at parking Rs. 15-20 lacs, partly for 15 days and partly for 2-3 months. An agent from birla sun life suggested the BSL cash manager and the BSL ultra short term fund. Another agent from ICICI bank suggested the ICICI liquid plan. Also, I read that tata and templeton have good liquid plans. Can you suggest me the best ones available in the market for my investment criteria.
(Jun 29 '11 at 11:55) Adi
Also, I understand that if one falls in a tax bracket of above 10%, it is advisable to go for the dividend option rather than the growth. Is this correct? If yes, is a dividend reinvestment better or the dividend payout? Thanks & Regards, Aditi
(Jun 29 '11 at 11:55) Adi
Also, what is the difference between liquid and liquid plus funds? I understand that liquid fund works with the previous days NAV and liquid plus works with the same day's closing NAV. How does this impact my investment. Which one is better suited for me.
(Jun 29 '11 at 12:18) Adi
Corporate papers are riskier than Govt securities, but can provide better returns on investment. You can invest into HDFC Cash management fund savings plan, HDFC Liquid fund and Birla cash plus. You can compare return of liquid funds yourself on following links: http://www.valueresearchonline.com/funds/h2_typecomp.asp?type=1&objective=1 https://www.moneysights.com/mutual-funds/mutual-fund-basic-view#!/2/1/13/Money-Market-Funds
(Jun 29 '11 at 17:18) pankaj
In case of dividend base investment, DDT (dividend distribution tax) will be deducted at 28.33% before payment by mutual fund company. In case of growth based investment, returns will be taxed as per your slab rates (0-30%). So if you fall in 30% bracket, invest in dividend payout option, else growth is good. Dividend reinvestment is not good in case of debt based funds as dividend after 28.33% deduction will be invested back to folio.
(Jun 29 '11 at 17:18) pankaj
Liquid plus funds holds investments for a longer period than liquid funds. So people investing in liquid plus should hold for longer duration than liquid ones. Investors who need liquidity should go for liquid funds. Some of the liquid plus funds may have an exit load. But there is no entry load on liquid funds. Liquid Plus funds are a bit riskier than liquid funds as they hold investments for a longer duration. A dividend distribution tax of 28.33% is charged on liquid funds, whereas 14.16% is charged for liquid plus funds.
(Jun 29 '11 at 17:19) pankaj
The link is quite helpful,thanks. How do I make out if a fund is a liquid fund or a liquid plus fund? Does the name of a liquid plus fund (always) have a 'plus' in it? I have shortlisted some funds, it will be nice to know your views on these: 1. Tata Liquid Super Hi - G 2. HDFC cash mgt fund savings plan - G 3. HDFC liquid premium plus - G Also, based on what is given on some webpages, Escorts Liquid - G looks pretty attractive. However, I am not sure about 'Escorts'. The AUM is also pretty low for this fund. What are your views on this fund.
(Jun 30 '11 at 13:42) Adi
I think it will make more sense to invest in atleast two seperate funds than to put all money in a single fund, pl suggest.
(Jun 30 '11 at 13:43) Adi
Please check minimum investment amount before shortlisting a fund. Tata Liquid Super Hi-G and HDFC Liquid premium plus-G both have min investment amount in crores. Also, before making a choice also see their holding structure. e.g. on this page: https://www.moneysights.com/mutual-funds/mutual-fund-details/5190/Tata-Liquid-Fund---SHIP---Growth check graphs at bottom.
(Jun 30 '11 at 16:26) pankaj
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Asked: Jun 27 '11 at 20:43

Seen: 4,250 times

Last updated: Jun 30 '11 at 16:26