CLOSE X

What are Liquid Funds and Debt Funds?

Jun-18-2023Blog by – Mr. Dhruv AjmeraRead Time: 4 Min.Word Count: 474
81What are Liquid Funds and Debt Funds?

The choice between liquid funds and debt funds can be a tricky one. Both are fixed-income securities and long-term capital gain from them is taxed at a flat 20% after indexation. You can consider consulting a mutual fund advisor to understand these funds in detail.


However, it is advisable that you also have the basic knowledge of these funds to make an informed choice. Here are some major differences between both funds.

Type

Debt funds are an investment option available in a mutual fund scheme. They invest money in assets such as government bonds, money market instruments, and corporate bonds. 

Liquid funds are a class of debt funds. They invest money in assets such as treasury bills, commercial paper, and government securities. 

Investment Term

You can invest money in debt funds for one day to 10 years. So, you can keep a short-term, mid-term or long-term horizon as per your investment goals.

Liquid funds have a maturity period of up to 91 days only. 

Risk

If you hold debt funds for a longer period, the interest and credit risk are higher.

Since liquid funds have a short maturity period and limited exposure to interest rates, the risk is much lesser. They are less volatile.

Returns

Debt funds yield higher returns than liquid funds, especially the longer you stay invested. However, interest rate fluctuations are likely to affect the returns of debt funds.

On the contrary, liquid funds offer comparatively lesser returns than debt funds but higher returns than interest rates in bank savings accounts. The returns are more stable than debt funds.

Liquidity

Debt funds are usually moderately liquid because there may be certain restrictions on redemption, depending on the scheme in which you have invested.

Liquid funds can be easily redeemed and converted into cash anytime because there are no exit charges. So, if your investment goal is high liquidity, then liquid funds are a better option than debt funds.

NAV Calculation

The NAV on debt funds is calculated only on business days. 

The NAV on liquid funds is calculated on all 365 days. This feature gives liquid funds an advantage over debt funds.

The Verdict – Which is Better?

Both debt funds and the liquid fund have their pros and cons as enlisted above. The decision to invest in either of them should be based on the following factors:

  • Your investment goals

  • Your investment horizon

  • Your risk appetite

  • Your liquidity requirement

  • Your returns expectation


You can also connect with Ajmera x-change, a leading investment and portfolio management company. We can offer you practical and customized financial advice to help you invest in any type of market fund, including liquid and debt funds. 


Get in touch with us to make the right investment.

Rate & Review:GoodOkNot Good

Leave Your Comments

Your Comments
Name
Email
Comments
No comments found

Open Demat Account

ATTENTION INVESTORS KYC IPO

Escalation Matrix

Details of Contact Person Address Contact No. Email Id Working Hours
Client Servicing / Customer care Suresh Munge 63-67, Ajmera House,
4th Floor, Off K.H.Ajmera Chowk,
Pathakwadi, Mumbai – 400 002.
022-40628913 suresh_munge@ajmera.co.in 10:00 am to 6:00 pm
Head of Client Servicing Mr. Dhanesh Bendre's 63-67, Ajmera House,
4th Floor, Off K.H.Ajmera Chowk,
Pathakwadi, Mumbai – 400 002.
022-40628915 dhanesh_bendre@ajmera.co.in 10:00 am to 6:00 pm
Compliance Officer Ashish Ajmera 63-67, Ajmera House,
4th Floor, Off K.H.Ajmera Chowk,
Pathakwadi, Mumbai – 400 002.
022-40628888 ashish@ajmera.co.in 10:00 am to 6:00 pm
CEO / Whole Time Director Ashish Ajmera 63-67, Ajmera House,
4th Floor, Off K.H.Ajmera Chowk,
Pathakwadi, Mumbai – 400 002.
022-40628888 ashish@ajmera.co.in 10:00 am to 6:00 pm

In absence of response/ complaint not addressed to your satisfaction, you may lodge a complaint with CDSL at https://www.cdslindia.com/Footer/grievances.aspx or SEBI at https://scores.gov.in/scores/Welcome.html. Please quote your Complaint Ref No. while raising your complaint at SEBI SCORES/ Depository portal.

Group Companies Members of BSE, NSE, MCX, MSEIL, CDSL, Broking Services, Depository Services
BSE Clearing No.: 911 | NSE Clearing No.: 11858 | MCX Clearing No.: 10665 | MSEIL Clearing No.: 11400 | CDSL DP ID: 30300 | SEBI Regn. No.: IN-DP-715-2022 | SEBI Reg No.: INZ000177531 (Cash/F&O/CDs/MCX)

Attention Investors
1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020.
2. Update your mobile number & email Id with your stock broker/depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge.
3. Pay 20% upfront margin of the transaction value to trade in cash market segment.
4. Investors may please refer to the Exchange's Frequently Asked Questions (FAQs) issued vide circular reference NSE/INSP/45191 dated July 31, 2020 and NSE/INSP/45534 and BSE vide notice no. 20200731-7 dated July 31, 2020 and 20200831-45 dated August 31, 2020 dated August 31, 2020 and other guidelines issued from time to time in this regard
5. Check your Securities /MF/ Bonds in the consolidated account statement issued by NSDL/CDSL every month.
.......... Issued in the interest of Investors

© Copyright 2022 Ajmera Associates Ltd
Designed, Developed & Content Powered by  Accord Fintech Pvt. Ltd.