The Best Liquid Mutual Funds for 2023 and Their Benefits
Investing in liquid mutual funds is a smart strategy for managing your cash reserves while ensuring liquidity and safety. With the current economic climate, many investors are looking for low-risk investment options that offer returns better than savings accounts. In this article, we will guide you through the key considerations and highlight the top liquid mutual funds to invest in for 2023.
Key Considerations for Selecting Liquid Mutual Funds
When choosing the best liquid mutual funds, there are several crucial factors to consider:
Average Maturity
One of the critical aspects of liquid funds is the average maturity. Ideally, you should opt for funds that have a higher average maturity. This means the fund invests in paper that matures within 91 days but with a shorter maturity period can result in lower returns. For instance, funds with an average maturity of 0.003 days (one day) typically indicate that they are holding more cash, which may result in lower returns. SBI Magnum Insta Cash Fund, for example, has an average maturity of just one day, hence, it is advisable to avoid such funds.
Average Credit Quality
It is essential to select funds that invest in securities with a higher credit rating, ideally not less than AAA. Funds with ratings lower than AAA (AA) may be more exposed to low-rated securities and are therefore riskier.
Why Returns Don't Matter
Investing in liquid funds is mainly about safety rather than returns. Your primary goal is to ensure that your money is safe and earning a return that surpasses the returns from a savings account. Therefore, returns of less than 1% are not significant factors. We prioritise quality and safety over potential higher returns, even if some funds like Escorts Liquid Fund have consistently higher returns, they are often exposed to lower credit ratings.
Top 5 Best Liquid Mutual Funds in 2023
Based on the above criteria and prioritising safety and quality, the top 5 best liquid mutual funds in India for 2023 are:
Birla Sun Life Cash Plus Fund
This fund has performed exceptionally well, providing a return of 7.70% in the last year. It is considered one of the best options available upon consideration of its outstanding performance and consistent returns.
ICICI Prudential Liquid Fund
The ICICI Prudential Liquid Fund has also been a standout performer, delivering 7.63% returns in the last year. This fund is often a top choice for investors seeking reliable returns and safety.
HDFC Liquid Fund
The HDFC Liquid Fund has garnered a stellar 7.65% return in the last year. This fund is renowned for its high-quality investments and consistent performance, making it a preferred choice for many investors.
Additional Considerations
While these funds provide impressive returns, it's important to note that they are not meant for long-term investment. Long-term investment plans such as ULIP (Unit Linked Insurance Plans) are more suitable for long-term financial planning. ULIP plans are both tax-deductible and have no entry or exit loads, making them a versatile option for investors.
Concluding Thoughts
In conclusion, when selecting the best liquid mutual funds, focus on maturity, credit quality, and safety, as these are paramount for ensuring your capital is protected and your returns are optimal. By considering a fund's performance and credit rating, you can make an informed decision that aligns with your investment strategy. For more detailed insights into specific fund models, consult with a financial advisor.