Liquid funds are great. They are safe, secure and provide liquidity to the portfolio. However, they get taxed as debt schemes. This makes the post tax-return low for investors, especially for those in the 30% tax bracket. That's one of the reasons for the popularity of arbitrage funds that give returns similar returns to Liquid schemes but are completely tax-free after the one-year holding period.
What are they? These are funds that invest in equities and take offsetting positions through derivatives like futures. As such, there is no exposure to market movements and investments are relatively safe.
USP? Get returns similar to liquid funds with the tax benefit of equity funds (tax-free after one year).
Where do they invest? These funds invest in cash market (stocks) and hedge them using derivatives (futures etc.) The returns they make are the difference in the pricing between the cash market and futures market....
Bank rates are at an all-time low. Yes, that makes your home loan really affordable, but investors looking for a safe and secure investment vehicle are left hungry for better alternatives. We want to take this opportunity to tell you briefly about liquid/money market funds and why you should know about them
Liquid/money market schemes
What are they? Highly liquid investments in high rated fixed income securities
USP? Get money back in your account anytime within 1 day without any penalty, earn annualised interest rate roughly equal to 1 year FDs. Favourable tax treatment as compared to FDs
Where do they invest? A portfolio of corporate deposits, FDs, government debt etc. that mature in less than 91 days. Usually, these schemes have the highest credit ratings among all debt schemes.
Why should you invest? These are great instruments to park money that you can recall anytime you want with no exit charges and very low...