Ask Value Research

Are debt funds and liquid funds the same?

Liquid funds are a type of debt funds which invest in bond securities of very short maturity period

Are debt funds and liquid funds the same and are they taxed similarly?
- Avnish Sharma

Liquid funds are a subset of debt funds. They invest in very short term debt instruments with a maturity period of less than 91 days. Generally, liquid funds do not have any exit load.

Yes, capital gains on liquid funds are taxed just like any other type of debt fund. If you redeem units within 3 years, you will have to pay tax on the short term capital gains. The gains will be added to your income and taxed as per the income tax slab applicable to you. In case you hold the units for more than three years, the gains will qualify for long-term capital gains tax of 20 per cent with indexation benefit on your original investment.

This article was originally published on February 27, 2017.

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