Liquid and liquid plus funds are short-term debt funds; they are different in a few aspects.
Investment tenure is the major differentiating factor between liquid and liquid plus funds. The debt instruments held by liquid plus funds have a longer tenure than liquid funds.
Liquid and liquid plus funds can be redeemed within a day. However, if liquid plus funds are redeemed within a specified period, there can be an exit load (the minimum investment tenure and the exit load vary across fund houses). On the other hand, there is no exit load on liquid funds.
In terms of tax implications, a dividend distribution tax of 28.33% is charged on liquid funds, whereas it’s 14.16% for liquid plus funds (in case of individual investors). Liquid plus funds pay lower dividend distribution tax as compared with liquid funds, which make them more attractive.
Liquid plus funds are riskier. This is mainly due to two reasons a) liquid plus funds hold investments that have a higher maturity and b) there is no limit on the mark-to-market (MTM) component of liquid plus funds.
A fine balance between risk and return and better tax efficiency is encouraging investors to favour liquid plus funds over liquid funds, Anybody with a slightly longer call preferred liquid plus schemes rather than liquid funds,
TAX Implication on Liquid & Liquid Plus Funds:
| Capital Gains Taxation |
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| | | STCG | | LTCG | |
| Individual | | As per the tax slab applicable for the investor | | 11.33% without indexation OR 22.66% with indexation | |
| Corporate | | 33.99% (30%+10%+3%) | | 11.33% without indexation OR 22.66% with indexation | |
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| The above figures include the tax rate + surcharge + cess SOURCE:www.valueresearchonline.com |
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The good aspect with LTCG is that the income tax authorities give you the option to include the benefit of indexation. Indexation is the process by which inflation is taken into account when doing the tax calculation. This is excellent because it reduces the amount of capital gains and consequently the amount you end up paying as tax.
