Over the last few years, mutual funds have become one of the most sought-after investment instruments and there are good enough reasons for the same. For starters, the returns that mutual funds offer is substantially higher than what their counterparts do. This holds true across different fund categories. Depending on the type of fund that you choose, you might even get handsome returns without taking a lot of risks.
With mutual funds, you get access to professionally managed funds without paying a ton of money for the same. And if you are someone who finds it difficult to save on a regular basis, simply setting up a SIP will ensure disciplined investment. The lock-in period of a mutual fund is also considerably lower than other investment avenues. And lastly, there is convenience. Right from the availability to ease of investing and redeeming.
It should not come as a surprise that several companies offer mutual funds. Among them, Reliance Mutual Fund is one of the leading Asset Management Companies in the country. The AMC is responsible for providing with some of the best performing mutual funds of recent times. And among its impressive list of funds, Reliance Liquid Fund holds its own good.
This open-ended mutual fund is a liquid fund at its core. In simple terms, a liquid fund ensures that you receive steady returns, year on year, without taking a lot of risks. Investors who are looking for a healthy and regular return without taking much risk, the fund can be ideal for your portfolio.
A liquid mutual fund is something that brings a lot of diversification to mutual funds as an asset class. For starters, unlike most other mutual funds, liquid funds do not invest in equity or capital market instruments. Rather, most of the investments are on the debt side as well as money market investments. The fund usually looks for money market instruments that have a maturity period of 90 days or less.
It is this short holding period which prevents these instruments from being traded in the secondary markets. This also ensures that the instruments are less traded. Since they are less traded, the risk associated along with them is relatively lower, when compared to other debt-based funds. Investors looking for low risk funds to park their excessive money find liquid funds are a lucrative option. Liquid funds invest in bonds and other money market instruments such as treasury bills.
The open-ended liquid fund came into existence on the 9th of December 2003. Since its inception, the fund has done well to keep up with the benchmark of CRISIL Liquid Fund Index and even surpassing it a couple of times. Entry and exit loads on mutual funds are charges that one must pay to the AMC for buying or redeeming a mutual fund.
A change in regulation by SEBI in the year 2009 ensured that investors did not have to pay for entry load on the purchase of any mutual fund. Thus, you can buy Reliance Liquid Fund without paying any entry load charges. Exit load, as the name suggests, is a small fee that one must pay on redeeming units of a fund. If you redeem units beyond a certain time period, these are mostly free of cost. As for Reliance Liquid Fund, there isn’t any exit load.
Ms. Anju Chhajer is the fund manager of Reliance Liquid Fund. She has been with Reliance Mutual Funds since 2007 and has successfully turned around a lot of debt based funds into profitable ventures. She has been responsible for several debt based funds for Reliance AMC as well.
By now, we already know that Reliance Liquid fund is a fund that primarily invests in debt based instruments and money market instruments. The fund is ideal for someone looking for consistent returns, without putting a lot of risk on the line. Also, the fund does a good job at keeping a lot of the funds liquid, so that you can withdraw your money or redeem the units as and when you need.
As far as debt based instruments are concerned, the fund largely invests in bonds such as zero coupon bonds that have an A+ rating. Another chunk of the investment gets into treasury bills that are issued by the government. Since the government is the guarantor for these bills, the risk levels are relatively low. On an average, the maturity date for liquid funds remains at 90 days.
If you wish to invest in Reliance Liquid Fund, there are different options and plans that you can choose from. The following list should help you to decide the right plan.
Any mutual fund that you buy with the help of an advisor, broker or distributor would come into the regular category. Since you are taking the help of a broker or advisor, the AMC has to pay them some charges or commission. This becomes a part of your fund in the form of expense ratio.
A direct mutual fund is the one where you can buy the fund from the AMC. Since there aren’t any intermediaries involved, the asset management company doesn’t have to pay for any charges or commission. This results in lower expense ratio, thereby making way to slightly better returns.
A growth option mutual fund is one of the most widely subscribed ones. The intent of investing in a mutual fund is to help your capital appreciate its value. Should there be any gains, the growth option reinvests the amount into the fund. This allows investors to make the most of compounding. And in the longer run, is helpful to generate more returns.
A dividend option, in simple terms, is quite the opposite of a growth option. If you opt for a dividend option, the profits are handed over to you at regular intervals. Of course, the amount of dividend and the frequency is at the discretion of the AMC and the fund manager. But if you are someone who wishes to have a regular source of income, a dividend option might be apt for you.
Reliance Liquid Fund invests majorly into debt money market funds. These largely include treasury bills and bonds. It is the addition of these instruments that classifies Reliance Liquid Fund as non-equity based fund. Thus, the fund is barred from the taxation rules that other equity funds must adhere to. The investments in Reliance Liquid Fund can either be short-term or long-term.
If you hold on to the fund for three years or less, the entire investment is categorized as short-term fund. On the other hand, if you hold on the fund for three years or more, it qualifies as long-term investments. Any gains that you make from short-term investments are subject to income tax according to your existing tax slabs.
And for long-term investments, taxation is slightly different. As an investor, you would need to pay 20% on the gains that you have made with the fund along with indexation benefits. The taxation remains at 10% if you do not opt for indexation.
One of the marque benefits of investing in a mutual fund is transparency. Anyone can take a look at the structure of a mutual fund and decide for themselves if they want to invest in the fund or not. The following is the list of top holdings of the Reliance Liquid Fund. Keen investors can take a closer look and take a more informed decision.
| Holding | Percentage Allocation |
|---|---|
| 91 Days TBill | 5.72 |
| National Bank for Agricultural and Rural Development | 3.76 |
| 91 Days TBill | 3.24 |
| Axis Bank Limited | 2.51 |
| Axis Bank Limited | 2.48 |
| Tata Steel Limited | 2.48 |
| National Bank for Agricultural and Rural Development | 2.01 |
| LIC Housing Finance Limited | 2.01 |
| Housing Development Finance Corporation Limited | 2 |
| Housing Development Finance Corporation Limited | 1.88 |
Here are the top 5 sectors in which the fund invests heavily along with its distribution pattern.
| Sector | Percentage Allocation |
|---|---|
| Commercial Paper | 78.64 |
| Certificate of Deposit | 21.71 |
| Treasury Bill | 10.13 |
| Corporate Bond | 0.76 |
| Bills Rediscounting | 0.76 |
Are liquid funds better than fixed deposits?
If you take a look at the past performance of Reliance Liquid Fund, it has been impressive, to say the least. The fund performed well when compared to the benchmark and surpassed it several times as well. The return of Reliance Liquid Fund is at par with the returns of a fixed deposit. But the biggest advantage is with the lock-in period. You can redeem a liquid fund whenever you wish, but the same is not applicable to fixed deposits.
Are liquid funds safe?
Most of the liquid fund investments are in the money market or treasury bills. Since a lot of these investments are government based, the associated risk is much lower as compared to equity-based funds.
Can liquid funds give negative returns?
The easiest way to answer it is to check facts. Over the last five years, Reliance Liquid Fund has always provided positive returns to its investors. There hasn’t been a single negative quarter till date.
How do I invest in ultra short term funds?
To invest in ultra short term funds, you can either do it online or offline. For investing online, you can either visit the website of an Asset Management Company or buy them with the help of brokers, advisors or distributors. The first step is to get your KYC registered, post which you can invest in a fund of your choice.
For the offline mode as well, the procedure remains similar. You need to contact anyone from the AMC or reach out to a local branch. You would need to fill the KYC form, provide supporting documents and a cheque for the amount you wish to invest.
How does liquid fund work?
After you finalize and zero down on a fund, you must proceed with the payments. When several investors like you invest money, the fund manager allocates the total amount collected to different money market instruments. On the maturity of these bills and bonds, the profits are added on to the fund.
How liquid funds are taxed?
If you hold on to a liquid fund for three years or less, it qualifies as short term investment. In such cases, the gains would be added to your annual income and the standard income tax will be applicable.
Should you hold on to your investment for more than three years, it qualifies as a long term investment. For such instances, you will have to pay 20% taxes on the gains, if you opt for indexation and 10% if you do not wish to include the benefits.
How to invest in reliance liquid fund?
You can invest in Reliance Liquid Fund either through the online or offline mode. For the online mode, an investor has to visit Reliance Mutual Fund’s official website or take the help of intermediaries such as advisors, distributors or brokers. Firstly, you will have to get your KYC registered, post which you can start your investments. After the registration, you can opt for a lumpsum investment or opt for Systematic Investment Plan.
In the offline mode, you must reach out to a representative of Reliance Mutual Fund or visit a local branch office. The process remains more or less the same, where you must get the KYC approved first. Along with the form and supporting documents, you also have to provide a cheque for the amount you wish to invest in the fund.
Is income from liquid fund taxable?
Yes. Any gains that you make out of a liquid fund is taxable. It largely depends on the time duration for which you are holding the funds. For funds held for three years or less, short term taxation is applicable. Whereas, for funds held for more than three years, long term taxation is applicable.
