How Liquid Funds & Money Market Funds are doing currently?

Ever since the Coronavirus pandemic struck, the Indian economy was severely impacted. The financial markets entered a bear phase as equity values were falling given the nationwide lockdown and uncertainty in the industry. Today, as the financial markets are getting back on track, equity is gaining momentum and the returns have turned positive. However, many investors prefer debt instruments for their personal finance needs which are unaffected by market swings and offer stable returns.

When it comes to debt instruments, debt mutual funds are preferred for their inflation-adjusted returns and minimal risks. While debt mutual funds come in different variants, if you are looking at a short-term investment horizon to tide over the pandemic blues, you can invest in the best money market funds and liquid funds. Let’s understand why –

What are liquid mutual funds?

Liquid mutual funds are debt mutual funds which invest in securities with a maturity of up to 91 days. These securities include cash and cash equivalents, commercial paper, treasury bills, etc. Since the maturity of the underlying assets is short, liquid mutual funds offer instant liquidity and are ideal for very short term investment horizons.

What are money market mutual funds?

Money market mutual funds are debt mutual funds which invest in money market instruments. These instruments have a maturity period of up to one year making money market funds short term debt funds, like liquid funds. So, if you have a short term investment horizon, higher than that of a liquid fund, you can avail the benefits of money market funds and invest in them.

How are these schemes doing in current times?

Both liquid mutual funds and money market funds are debt-oriented funds. As such, they are unaffected by market volatility. Since the equity market is currently volatile, many investors are choosing liquid funds and money market funds in the current scenario. So, if you are looking for stability in your financial portfolio, you can invest in these funds and get the benefits of money market funds and liquid funds in the form of stable returns.

Liquid fund and money market mutual funds are suitable if –

• You want to invest for a short duration
• You want to park your cash temporarily before you allocate it to other avenues
• You want easy liquidity
• You want to create an emergency corpus for the rainy days

Some of the best money market funds and liquid funds for your investments are given below –

Best money market funds

Best Liquid Funds

*Returns as on 11th September 2020

So, for short term investments and stable returns, you can choose from the above-mentioned liquid and money market funds. However, before investing in the best money market funds and liquid funds, understand their tax implications. Planning your taxes effectively is essential for the management of personal finance. So, here’s a look –

• Investments into the liquid or money market mutual funds would give you no tax benefit. Investments done into these schemes would form a part of your taxable income
• If you redeem the funds within 36 months of investment, the returns earned would be called a short term capital gain. Such gains would be added to your income and taxed at your slab rate
• If you redeem the funds after 36 months of investments, the returns earned would be called long term capital gains. Such gains would be taxed @20% after indexation

Your personal finance needs change with changing times and your financial portfolio should also change with changing market dynamics. Liquid and money market mutual funds are doing good currently and you can avail the benefits of money market funds and liquid funds by investing in them.