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Tuesday, March 29, 2011

Basic funda on Liquid funds

Beginners’ introduction to mutual Fund investment

• What is a liquid fund?

In financial terms, “Liquid” means asset which is as good as hard cash. Liquid Funds are a kind of debt - mutual fund which invests in money market instruments, (Money market – Market for short term lending and borrowing – Commmercial papers, Company bonds, treasury bills etc.) with maturity less than a year. This fund can be redeemed in as less as 24 hours.

• Why would you invest in liquid funds?

o No entry/ No Exit load (if not withdrawn within the lock-in period )
o Annual fee 0.30 to 0.70%
o Better tax benefits than FDs (Interest is taxable according to the tax bracket of the investor) [In the dividend option returns are tax free at the hand of investor]
o An average/ approx 8% p.a. return on liquid funds
o Maximum of 10 per cent or less mark-to-market component, indicating a lower interest rate risk

• How do you invest?
You can invest in these funds through online or normal offline procedures.

Liquid funds are good way to get introduced to the mutual funds - for the first timers

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