Liquid funds - Charges and taxation

Adi 1
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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

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1 Answers

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.

Pankaj Batra5212

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.

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

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.

Adi•
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