What are the tax implications if one invests in liquid and liquid plus funds for 6, 9, 12 or more months? What would be the premature exit penalty or charges for these funds?
Typically, liquid funds come without any exit load. So you can get in and out of them any time, even for a couple of days, without having to pay any exit load. In case of liquid plus funds, there is a redemption fee or an exit load for investments of less than 7 days, or sometimes for a slightly longer period.
Coming to the tax treatment, both liquid and liquid plus funds are taxed like all other debt funds. Short-term gains will be added to your taxable income, while long-term gains will be taxed at 10 per cent without indexation and 20 per cent with indexation. In case of dividends, they will be tax-free in your hands. However, liquid plus funds have a dividend distribution tax of 12.5 per cent, which is 25 per cent in case of liquid funds.