Which liquid funds do well for the short term?

The investment horizon is less than six months, so investing in a debt mutual fund with a low duration would be ideal for your investment objective.

There are various debt categories that will be suitable for your investment horizon. There are liquid mutual funds such as Axis Liquid Fund, Mirae Asset Liquid Fund; money market funds – HDFC Money Market Fund, SBI Savings Fund; ultra short funds – ICICI Prudential Ultra Short Term Fund, HSBC Ultra Short Duration Fund; low duration funds – Aditya Birla Sun Life Low Duration Fund, Kotak Low Duration Fund; arbitrage funds – Tata Arbitrage Fund, Nippon India Arbitrage Fund.

The above funds are some indicative funds based on their historical performances that you may want to look at. You may explore other options in the category that you find most suitable for your requirements.

All the funds in these categories can be liquidated in a very short span – T+1 basis for all the above, except for arbitrage funds, which is T+2.

T+1 refers to trade-related settlements that must be completed within a day of the transaction.

Money market, ultra short and low duration are all debt funds with a potential to give returns that are slightly higher than liquid funds.

The advantage of arbitrage funds is that the returns get the treatment of equity taxation. The short term (less than one year holdings) capital gains tax rate is 15%, whereas the capital gains on all other categories are taxed at the marginal tax rate.

Capital gains from debts funds are taxed at the investor’s slab rate, regardless of the holding period. But also keep in mind that the returns from arbitrage funds might get affected if the spreads between futures contracts and the underlying stocks shrink in certain phases of the market.

Please note that the calculations are based on the assumptions and information provided. You may consult a financial advisor for a more personalized advice.

Vijay Kuppa is chief executive officer of InCred Money

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Updated: 02 Oct 2023, 10:57 PM IST