Best Liquid Funds for an Investment of Rs. 1.5 Lakhs: A Short-Term Perspective

Investment decisions are often influenced by multiple factors, including the duration of your investment, your risk tolerance, and your financial goals. For a short-term investment horizon, liquid funds have become a popular choice, providing a balance of liquidity and stable returns. This article will explore the best liquid funds available in the market, focusing on short-term investment needs.

Peer-to-Peer Lending: An Alternative

For those looking for alternative investment options with shorter-term horizons, peer-to-peer (P2P) lending platforms have gained popularity. P2P lending platforms offer monthly EMI options and can provide monthly returns as high as 35%. Popular P2P lending platforms like LenDenClub offer curated and secure investments.

Liquid Funds: A Sound Short-Term Investment

Considering your investment period, liquid funds are a highly suitable option. Liquid funds primarily invest in short-term money market instruments, ensuring high liquidity and low interest rate risk. They are designed to generate returns that closely follow the prevailing market yield, making them an ideal choice for short-term investments.

Top Liquid Funds for Rs. 1.5 Lakhs

Reliance Liquid Treasury Fund Indiabulls Liquid Funds Essel Liquid Fund - Regular Plan

These funds provide the flexibility to withdraw your investment at any time, making them perfect for emergency funds or contingency plans. However, it is important to understand the tax implications associated with these funds to maximize your returns.

Taxation on Liquid Funds

Liquid funds come with specific tax implications depending on the holding period:

Dividend distributions from liquid funds are tax-free in the hands of the investor. Short-term capital gains on units sold before 3 years are taxed as per the income tax slab. Long-term capital gains on units sold after 3 years are taxed at 20% with the benefit of indexation.

Comparing to Equity Arbitrage Funds

While liquid funds offer stable returns and high liquidity, equity arbitrage funds can deliver better post-tax returns with similar risk levels. Equity arbitrage funds invest in derivatives and other debt instruments to benefit from mispricings in the market, resulting in fixed income.

Taxation on Equity Arbitrage Funds

Equity arbitrage funds also have specific tax implications:

Dividend distributions from equity arbitrage funds are tax-free in the hands of the investor. Short-term capital gains on units sold before 1 year are taxed at 15%. Long-term capital gains on units sold after 1 year are tax-free.

Given the shorter investment horizon, consider the dividend option to avoid paying tax on the short-term gains.

Conclusion

When it comes to investing Rs. 1.5 lakhs for a short term, both liquid funds and equity arbitrage funds offer attractive options. Liquid funds provide high liquidity and stable returns, while equity arbitrage funds can deliver better post-tax returns with a similar level of risk. Choose the option that best suits your financial goals and risk tolerance.

Happy investing!