Best Liquid Funds with Highest Safety Ratings in India

In today’s financial world, liquid funds have become an essential component of a well-diversified investment portfolio. For investors seeking liquidity, safety, and decent returns, the best liquid funds stand out as an excellent choice. Particularly in India, where market volatility can be abrupt, choosing funds with the highest safety ratings ensures risk is minimised while maintaining adequate liquidity. This article delves into the top liquid funds that offer the highest safety ratings in India, highlighting their features, net asset value (NAV) trends, and suitability for different investor profiles.

Understanding liquid funds and their importance

Liquid funds belong to the category of debt mutual funds that invest primarily in short-term money market instruments. These include treasury bills, commercial papers, certificates of deposit, and government securities with maturities usually up to 91 days. The primary objective of liquid funds is to provide investors with stable returns while ensuring liquidity and capital preservation.

Investors prefer liquid funds due to their safety of principal amount and quick redemption facilities. They serve as an ideal parking space for surplus money when one requires access to funds within 24 hours. Compared to savings bank accounts, liquid funds often deliver better post-tax returns, making them attractive for individuals and institutions alike.

Key factors defining the best liquid funds

Not all liquid funds offer the same level of safety and performance. To identify the best liquid funds, consider the following critical factors:

– Safety ratings: Rated by agencies such as CRISIL and ICRA, safety ratings assess a fund’s credit quality and liquidity profile.

– Fund management quality: Experienced fund managers with a consistent track record enhance reliability.

– Average maturity and portfolio composition: Lower average maturity reduces interest rate risk.

– Net asset value (NAV) stability: Consistent NAV with minimal volatility signifies safety.

– Expense ratio: Lower expense ratios improve net returns.

– Historical returns: Past performance, especially in volatile markets, indicates fund resilience.

High safety ratings and their significance in liquid funds

Safety ratings are vital as they reflect the credit quality of the underlying securities and the fund’s ability to repay investors promptly. CRISIL Liquid Fund Ranking and ICRA’s ratings are the most trusted in India. Liquid funds with a rating of ‘SA1+’ (ICRA) or ‘Highest Safety’ (CRISIL) are considered to carry the least credit risk.

Investors prioritising capital preservation should opt for these highly rated funds to minimise the risk of default or principal erosion. Such funds typically invest in government securities and top-tier corporate papers, ensuring safety without compromising on liquidity.

Top liquid funds with highest safety ratings in India

Based on latest ratings and fund performance data up to 2024, the following liquid funds are recognised for their superior safety profiles and stable NAV trends:

1. HDFC Liquid Fund

HDFC Liquid Fund has consistently maintained a top-tier safety rating from CRISIL. The fund principally invests in government securities and short-term money market instruments with high credit ratings. Its average maturity stands around 30 days, which helps reduce duration risk.

– NAV trend: Steady growth with minimal fluctuations.

– Expense ratio: Approximately 0.15%.

– Security rating: Highest Safety by CRISIL.

– Suitable for: Investors seeking excellent liquidity alongside capital preservation.

2. Aditya Birla Sun Life Liquid Fund

This fund is popular for its portfolio quality and stringent risk controls. It has been awarded the highest safety rating by ICRA, reflecting strong credit quality and liquidity.

– NAV trend: Consistent and stable.

– Expense ratio: Around 0.13%.

– Security rating: SA1+ by ICRA.

– Suitable for: Both retail and institutional investors requiring quick access to funds.

3. ICICI Prudential Liquid Fund

ICICI Prudential’s offering in the liquid fund category delivers a fine balance between safety and return. The fund primarily sticks to government securities and top-rated papers, as indicated by its ‘Highest Safety’ rating.

– NAV trend: Smooth and predictable.

– Expense ratio: Near 0.12%.

– Security rating: Highest Safety by CRISIL.

– Suitable for: Conservative investors with short-term financial goals.

4. SBI Liquid Fund

Managed by State Bank of India, this liquid fund focuses heavily on central and state government securities, ensuring superior safety standards.

– NAV trend: Minimal volatility.

– Expense ratio: About 0.10%.

– Security rating: Highest Safety by CRISIL.

– Suitable for: Investors wanting protection of principal with high liquidity.

5. Axis Liquid Fund

Axis Liquid Fund has garnered positive response due to its disciplined approach towards credit risk and liquidity management. It holds the highest safety ratings from rating agencies.

– NAV trend: Stable with upward trajectory.

– Expense ratio: Approximately 0.14%.

– Security rating: SA1+ by ICRA.

– Suitable for: Risk-averse investors looking for quick redemption options.

Understanding NAV in liquid funds and what it signifies

Net asset value or NAV is the market value per unit of a mutual fund on a specific date. For liquid funds, NAV tends to be stable because these funds invest in short-duration instruments with low credit risk.

While the NAV of liquid funds does not fluctuate dramatically like equity funds, subtle changes occur reflecting accrued interest income. Investors monitor NAV to understand the fund’s performance and the safety of their investment.

Investors interested in the best liquid funds should regularly track NAV movements along with safety ratings to assess stability and credit quality. A consistently stable NAV is generally a hallmark of high safety.

Benefits of investing in best liquid funds in India

Choosing the top-rated liquid funds offers several advantages to Indian investors:

– Capital protection: The highest safety ratings guarantee a lower chance of default.

– Liquidity: Redemption within one business day facilitates fund availability in emergencies.

– Better returns than savings accounts: Liquid funds often outpace savings bank interest rates.

– Professional management: Skilled fund managers ensure optimal portfolio composition.

– Tax efficiency: Holding liquid funds for more than three years attracts long-term capital gains tax, which may be beneficial compared to fixed deposits.

By selecting the best liquid funds with superior safety ratings, investors can effectively park their surplus cash for short-term needs without compromising on safety or returns.

How to choose the best liquid funds based on your needs

Each investor’s financial goals and risk tolerance differ. Here are some factors to consider when picking liquid funds with high safety ratings:

– Time horizon: For holding periods of a few days to a few months, liquid funds are ideal.

– Safety priority: Prioritise funds with ‘Highest Safety’ or ‘SA1+’ ratings.

– Expense ratio: Opt for funds with lower expense ratios as they impact net returns.

– Historical NAV stability: Select funds with consistently stable NAVs.

– Fund manager experience: Check the expertise of the fund management team.

– Exit load: Most liquid funds do not charge exit loads but verify prior to investing.

– Redemption timelines: Confirm ease and speed of withdrawal.

Choosing a liquid fund that aligns with these factors ensures liquidity, safety, and reasonable income.

Regulatory safeguards for liquid funds in India

The Securities and Exchange Board of India (SEBI) has set clear guidelines for liquid funds to protect investor interests. These include:

– Minimum residual maturity limited to 91 days for underlying instruments.

– Restriction on exposure to any single issuer to maintain diversification.

– Liquid funds must provide redemption proceeds within one business day.

– Disclosure requirements on portfolio composition, risk, and returns.

Such regulations ensure that the best liquid funds maintain high safety standards and offer investors quick access to their money.

Conclusion

For Indian investors seeking a balance of safety, liquidity, and modest returns, the best liquid funds with the highest safety ratings emerge as a compelling option. These funds, backed by stringent credit quality and robust portfolio management, offer stable NAVs and capital preservation. Monitoring the NAV trends alongside safety ratings enables investors to make informed decisions and protect their short-term investments effectively.

Selecting reputed liquid funds like HDFC Liquid Fund, Aditya Birla Sun Life Liquid Fund, and ICICI Prudential Liquid Fund ensures safety and ready access to funds when needed. Investing in the right liquid fund not only optimises returns compared to traditional savings but also provides peace of mind.

Incorporating these highly rated liquid funds into one’s portfolio can facilitate seamless management of surplus funds while maintaining a conservative risk profile. Thus, when choosing the best liquid funds, prioritising highest safety ratings and analysing NAV patterns remains crucial for capital-safe and efficient investing.