PhonePe Launches Liquid Fund. Should You Invest?

Liquid funds are low risk, highly liquid and offer better returns than bank savings account
PhonePe Launches Liquid Fund. Should You Invest?
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Digital payments company PhonePe on Wednesday announced that it will launch liquid fund investment through its app. It has tied up with Aditya Birla Mutual Fund for this offering, giving the app’s close to 175 million users the option to invest their idle money into a liquid mutual fund.

Users can start investing with as low as INR 500, with no upper limit. Deposits and withdrawals can be done in a few taps and in under five minutes. As of now, PhonePe is offering investment services to its users free of cost.

The Flipkart-owned company forayed into financial products in 2018 with gold buying and selling option followed by tax-saving funds in March 2019. Currently, the platform offers only three equity-linked savings schemes (ELSS) and will offer one liquid fund.

“This is our second product in the mutual funds space after tax-saving funds where we have created a completely digital investment flow for our users. Liquid funds will allow millions of our users to earn higher returns on their savings with the ability to withdraw their money instantly 24x7. We will continue to add more such financial solutions for our users to manage their money and fulfil their life aspirations in a better way,” said Terence Lucien, head of mutual funds, PhonePe, in a company statement.

Times-internet backed ET Money also offers a similar product named ‘Smart Deposit’, wherein a user can invest a minimum of INR 1,000 in Nippon India Liquid Fund and also instantly withdraw the invested amount whenever he wants.

To help you decide whether you should invest in a liquid fund or not, we tell you what it is and why a liquid fund is a better savings option compared with a savings account.

Why Invest in a Liquid Fund

A liquid mutual fund invests in very short-term market instruments, such as government securities and treasury bills, making it a safe investment option among mutual funds. It is a type of debt fund that is low risk, highly liquid and typically offers better returns compared with savings account (3.5-5.5 per cent), and even fixed deposits (FDs) post-tax.

Liquid Funds have Delivered over 6% in the Last 1 Year

Liquid Fund Scheme

Portfolio Size (Cr)

1-year Returns (%)

HDFC Liquid

72,123

6.48

ICICI Pru Liquid

61,257

6.56

SBI Liquid

46,795

6.47

Aditya Birla Sun Life Liquid

40,445

6.65

UTI Liquid Cash

34,131

6.59

Nippon India Liquid

33,274

6.66

Axis Liquid

30,628

6.61

Kotak Liquid

30,493

6.44

Source: Value Research; Returns as on 8 Jan 2020; Schemes sorted according to portfolio size

Experts say that liquid funds are a good saving option for short-term goals with an investment horizon of up to one year. “Those investors looking to park their savings out of their sight or to save for short-term goals can do so in liquid funds,” says Amit Suri, a Delhi-based financial planner.

“Investors should know that they carry lowest risk but are not completely risk free as they are market-linked instruments like any other mutual fund.”

As per latest guidelines issued by market regulator Securities and Exchange Board of India, liquid funds will carry an exit load of 0.0065-0.0045 per cent if the investor exits within seven days of investment. There was no exit load on liquid funds earlier. Revised guidelines also state that liquid fund schemes can now invest a maximum of 20 per cent of their total assets in one sector. This move was formulated by the market regulator after a series of debt fund defaults to make liquid funds even safer.

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