Introduction
If you are a short-term goal investor, you would seek risk-free and highly liquid options. This is how we compare liquid funds and liquid ETFs: both are great options for safely parking money but approach the task differently. Let's break down the distinctions to help you make the correct decision.
What Are Liquid Funds?
Liquid funds are mutual funds that invest in short-term debt securities and money market instruments with maturities of up to 91 days. They’re designed for stability, offering steady returns and quick access to your money. If you’re new to investing or have a low-risk appetite, liquid funds are an excellent choice.
One of the main benefits is liquidity—you can withdraw your investment, and the money is credited to your account within 24 hours at the current Net Asset Value (NAV). You can invest in liquid funds through online platforms or mutual fund houses without a demat account.
Key Benefits of Liquid Funds:
- High liquidity with low volatility.
- Suitable for parking surplus cash for short-term needs.
- No demat account opening or online trading platform is required.
What is Liquid ETF?
Liquid ETFs, or liquid exchange-traded funds, also invest in short-term money market instruments, but they're traded on stock exchanges. Unlike liquid funds, liquid ETFs provide real-time liquidity—you can buy or sell them during market hours, much like stocks.
Investment in a liquid ETF can be made only by opening a demat account with any stockbroker present in India or using an online trading platform. Thus, it is a little complicated compared to a liquid fund; however, it is cost-effective and has very low expense ratios.
Key advantages of Liquid ETFs
- Intraday liquidity for active investors
- Lower expense ratios compared with Liquid funds
- Real-time trading is done on an exchange, thereby transparency
Liquid Funds vs Liquid ETFs: A Comparison
Which to Choose?
Liquid funds are a more convenient option if you prefer simplicity and easy accessibility. They do not require opening demat accounts or dealing with the intricacies of a stock exchange. In fact, they are perfect for you if you do not want the hassle of finding quick, stable returns.
Suppose you already have a Demat account or are actively using an online trading platform. In that case, liquid ETFs are a great way to park your funds with added benefits like intraday liquidity and lower costs. Many platforms offer free online demat account openings if you're looking for the best demat account in India. This makes investing in liquid ETFs easier than ever.
Taxation: What You Should Know
Liquid funds and liquid ETFs are treated with the same kind of taxation:
- Those held for less than 3 years will be charged according to your income slab.
- For long-term investments, you will enjoy LTCG with indexation benefits.
Both are favourable for short-term and slightly longer time horizons based on your investment goals.
Getting Started
To begin liquid funds investing, you can use mutual fund apps or platforms to invest directly without a demat account. You need to have an active demat account for liquid ETFs. If you are unsure where to start, research the best online trading platforms in India or ask a stockbroker for guidance.
Popular platforms now help you easily open your free Demat account online, to explore investment options like ETFs. Suppose you wish to update yourself on every new investment opportunity, be it an upcoming IPO or a series of mutual funds investment plans available. In those cases, even these platforms guide and provide suitable tools to widen your portfolio and diversify further.
Conclusion
Liquid funds and liquid ETFs are two options for short-term financial goals. They cater to different needs but can be close in many respects. While liquid funds are simple and easy to access, liquid ETFs offer real-time trading opportunities for more active investors. Select the one that aligns with your investment style, financial goals, and comfort level with trading platforms.
The right approach can help you achieve financial stability and liquidity. Whether you are an experienced investor or just starting, there has never been a better time to explore these low-risk investment options .
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