Liquid Fund Investment: Axis Liquid Fund Guide

Liquid funds are a type of debt mutual fund that provides optimal returns with a low-to-moderate level of risk and high liquidity. The Axis Liquid Fund is a debt fund that invests in money market and high-quality debt securities, seeking to generate reasonable returns with low risk and high liquidity. With a conservative investment strategy, the fund's holdings are primarily in Large Cap stocks and debt instruments. It is suitable for investors who want to invest for the short term or build an emergency fund. The fund can be purchased directly from the Axis Mutual Fund website or through platforms like MF Central and MF Utility.

Where to buy Axis Liquid Fund

Axis Liquid Fund can be purchased directly from the website of the fund house, Axis Mutual Fund. You can also buy mutual funds through online platforms like MF Central and MF Utility. If you are uncomfortable buying mutual funds online, you can seek help from a mutual fund distributor, including most banks.

When buying directly from the Axis Mutual Fund website, you will likely need to create an account and provide personal information, such as your name, address, and financial details. You may also need to set up a payment method, such as a bank transfer or credit card. The website will guide you through the process of selecting the Axis Liquid Fund and making your investment.

Online platforms like MF Central and MF Utility may offer a similar process, where you create an account, provide personal and financial information, and then proceed to purchase the Axis Liquid Fund. These platforms may also provide additional tools and resources for investing in mutual funds.

If you choose to work with a mutual fund distributor or bank, you can connect with them directly to understand their specific process for purchasing the Axis Liquid Fund. They may provide in-person or phone support to guide you through the investment process.

Risk factors and portfolio characteristics

Risk Factors

Axis Liquid Fund is a low-to-moderate-risk investment option. The fund seeks to generate reasonable returns commensurate with low risk and high liquidity. The risk of incurring a loss in these funds is negligible, but they do not guarantee returns or the safety of capital. Rare instances of losses in liquid funds have occurred.

Liquid funds are placed at the lower end of the risk-return spectrum compared to other debt mutual funds due to the nature of their securities and the short maturity of the investments. However, some element of risk is present, depending on the securities the fund holds. If the fund holds securities of private issuers, you could expect low-to-moderate risk, depending on their rating.

To minimise risk, look for liquid funds that invest in government or quasi-government securities, Treasury Bills (T-Bills), and AAA/A1+ rated Public Sector Undertakings. Avoid funds with exposure to corporate papers carrying high credit risks. Ensure the fund's portfolio is well-diversified across a range of securities and not overly concentrated in a single company or group of companies.

Portfolio Characteristics

Axis Liquid Fund is mandated to invest in bonds with a maturity of up to three months. It falls under the category of debt mutual funds, investing in money market and debt instruments. As of 31 July 2023, the fund had invested 103.14% in debt and -3.14% in cash and cash equivalents. The fund's holdings are mostly in Large Cap stocks and debt instruments, indicating a conservative investment strategy.

The fund has a 122.09% investment in debt, with 24.71% in government securities and 97.38% in Low-Risk securities. It has a well-diversified portfolio, with no. of 81 debt holdings (compared to a category average of 56.06). The fund's asset allocation is conservative, and it is rated as a 4-star fund in the debt category.

Taxation of Liquid Funds

Taxation on liquid funds depends on whether the investment is classified as a capital gain or a dividend. Capital gains are taxed depending on how long the investment is held for, known as the holding period. If the holding period is three years or less, the gain is classified as a short-term capital gain (STCG). STCG is added to the investor's overall income and taxed at their income tax slab rate. If the holding period is more than three years, the gain is classified as a long-term capital gain (LTCG) and is taxed at a flat rate of 20% after indexation. Dividends offered by liquid funds are added to the investor's overall income and taxed at their income tax slab rate.

Liquid funds are taxed as non-equity funds, which means they are taxed in the same way as debt funds. Dividends paid out by liquid funds are tax-free for the investor, but there is a dividend distribution tax (DDT) of 28.84% that is deducted by the fund when dividends are paid out.

How to invest in Axis Liquid Fund

Investing in liquid funds is a good option for risk-averse investors who want to preserve their capital and generate modest returns. Liquid funds are categorised as debt mutual funds that provide optimal returns with low-to-moderate risk and high liquidity. They invest in securities with a maturity period of up to 91 days, such as commercial papers, treasury bills, and certificates of deposit.

Understanding the Fund:

Axis Liquid Fund is a debt fund that seeks to generate reasonable returns with low risk and high liquidity. The fund invests in a portfolio of money market and high-quality debt securities, with a focus on Large Cap stocks. It has a conservative investment strategy and is suitable for investors looking for a short-term investment option or wanting to build an emergency fund.

Where to Invest:

You can invest in the Axis Liquid Fund directly through the website of the fund house, which is the Axis Mutual Fund website. Alternatively, you can use platforms like MF Central or MF Utility. If you prefer not to invest online, you can seek the help of a mutual fund distributor, including most banks, which often act as mutual fund distributors.

Investment Options:

Axis Liquid Fund offers different investment options, such as the Growth option and the Dividend option. The Growth option reflects all profits or losses in the Net Asset Value (NAV), while the Dividend option may pay out a portion of profits as dividends, resulting in a lower NAV.

Minimum Investment:

The minimum lump-sum investment amount for the Axis Liquid Fund is ₹1000, and you can invest in multiples of ₹1000. The minimum Systematic Investment Plan (SIP) amount is ₹1000, and you can increase this in multiples of ₹100.

Risk and Returns:

The Axis Liquid Fund has a low-to-moderate risk level. While it seeks to provide reasonable returns, it is important to remember that liquid funds deliver steady but low returns and are not suitable for long-term wealth creation. The returns are expected to be marginally higher than your bank account returns.

Taxation:

As a debt fund, the Axis Liquid Fund is subject to Short-Term Capital Gains Tax if held for less than three years, taxed according to your income tax slab. If held for more than three years, the gains are subject to Long-Term Capital Gains Tax at a rate of 20% with indexation benefits.

Other Considerations:

When investing in liquid funds, it is important to consider the portfolio characteristics. Look for funds that invest in government or quasi-government securities, Treasury Bills, and highly-rated Public Sector Undertakings. Avoid funds with high exposure to corporate papers, as they may carry higher credit risks. Ensure the portfolio is well-diversified and not concentrated in a specific company or group of companies.

Axis Liquid Fund's performance

Axis Liquid Fund is a mutual fund that invests in bonds with a maturity period of up to three months. The fund seeks to generate reasonable returns with low risk and a high degree of liquidity. The risk of loss in these funds is negligible, but they do not guarantee returns or the safety of capital.

As of 29 July 2024, the latest Net Asset Value (NAV) of the fund was ₹2,727.1478, with a 0.02% change from the previous day. The fund's performance has been average among its peers, with a size of ₹23,260.17 Cr as of the same date. The expense ratio of the fund is 0.34%, which is slightly higher than the category average of 0.27%.

The fund has a low-to-moderate risk level, according to SEBI's Riskometer, with 122.09% investment in debt and 24.71% in government securities. As of 30 June 2024, the number of debt holdings was 81, compared to the category average of 56.06. The modified duration was 0.17 years, slightly higher than the category average of 0.15, and the yield to maturity was 7.30%, marginally higher than the category average of 7.25%.

Axis Liquid Fund has delivered 6.98% returns since its inception nearly 14 years ago. The fund's returns are currently better than the category average, and its holdings are mostly in Large Cap stocks and debt instruments, indicating a conservative investment strategy.

Frequently asked questions