Liquid-plus funds: These funds were launched to cater to those with a stomach for slightly higher risk, and as a result higher returns. A typical liquid-plus fund will have similar investments like a liquid fund, but around 30 per cent of the corpus is invested in instruments with longer maturity period.
They do not have any restriction on the mark-to-market component (liquid funds can have only up to 10 per cent) and there is no lock-in period for the liquid-plus funds category. Also, liquid-plus funds are a hit as they are more tax-efficient. The dividend distribution tax works out to 14.16 per cent as against 28.33 per cent for liquid funds.
As it can been seen, the positioning of these two categories is quite different. That is, they provide an option between short-term liquid funds and other long-term debt funds. They are, hence, attractive for those who want a slightly higher return without going all the way with only higher tenure investment options.
Though the performance of these two funds is similar, in a rising interest rate regime, long-term maturity papers are observed to be riskier and their value reduces. This leads to loss of returns of liquid-plus funds.
In the recent times, tough market conditions and the fear in investors have hit the assets under management of both these funds. Especially, corporate investors have been cautious. This has led to a negative impact of the expense ratio on the returns.
As the tax treatment of liquid-plus funds is better, they would still outperform, considering the net-of-tax parameter. This is why retail investors can consider this as a more sensible option, albeit at higher risk, to invest their money in the short term.
They do not have any restriction on the mark-to-market component (liquid funds can have only up to 10 per cent) and there is no lock-in period for the liquid-plus funds category. Also, liquid-plus funds are a hit as they are more tax-efficient. The dividend distribution tax works out to 14.16 per cent as against 28.33 per cent for liquid funds.
As it can been seen, the positioning of these two categories is quite different. That is, they provide an option between short-term liquid funds and other long-term debt funds. They are, hence, attractive for those who want a slightly higher return without going all the way with only higher tenure investment options.
Though the performance of these two funds is similar, in a rising interest rate regime, long-term maturity papers are observed to be riskier and their value reduces. This leads to loss of returns of liquid-plus funds.
In the recent times, tough market conditions and the fear in investors have hit the assets under management of both these funds. Especially, corporate investors have been cautious. This has led to a negative impact of the expense ratio on the returns.
As the tax treatment of liquid-plus funds is better, they would still outperform, considering the net-of-tax parameter. This is why retail investors can consider this as a more sensible option, albeit at higher risk, to invest their money in the short term.