How to pick the Right Liquid Fund for Short Term Goals? | CA Rachana Ranade

"And I'm sure you might have understood very little things. Okay, I'll just simplify this for you."

"So, in simple words what did we say? Liquid funds can be used for short-term goals. Okay."

"Ideally slightly better returns as compared to saving bank account is what we can target but please don't expect returns like 12% or 15%."

"For that I'm going to take you to the website tickertape.in."

"Always remember AUM higher the better. Okay. So, what am I going to do? I'm just going to drop down and here I'm going to say 3 crores mutual fund I don't want let's say I want a mutual fund with an AM of at least 20,000 cr rupes"

"So here you can check threeear CGR. Now if I just click here, it will be sorted in a highest to lowest category in a descending fashion. I'm just going to call out top three. Okay, based on threeear CG ayat sun life liquid fund, access liquid fund and nippon India liquid fund. Okay, but you are saying now why threeear CG? I want also I I also want to check one year absolute returns."

"And for that we typically check sharp ratio. Okay. And you can also see the ratio for I mean formula for sharp ratio. Uh if you want you can check it out. But it's anyways ready made readily available on ticker tape. So let's get back to the screen and here uh let's add one more filter. If you're not sure where it would come ideally it will come in ratios and it is uh but you can also directly search here. Okay. So I'm I'm going to ratios sharp ratio and I'm going to say done. Okay. important higher the better or lower the better higher the better"

"Now one more important point comes up is okay returns are fine but I want to ensure that returns are not taken with a higher risk and for that we typically check sharp ratio. Okay. Now just to give you a comparison of what is return versus risk. Uh these days England versus India matches are going on. So I'll give you an example. Let's say a batsman has hit 100 runs with all the aerial shots something like rishap punt okay versus there is a batsman let's say shuman gil and he is playing all ground strokes and he has also scored 100 now you'll be like returns both have given 100 but who has taken more risk shoil has taken less risk punt has taken more risk so I am interested to go ahead with a fund which is giving me better returns with a specific unit of risk or with a similar uh unit of risk. Okay. And for that we go ahead with sharp ratio. Okay. And you can also see the ratio for I mean formula for sharp ratio. Uh if you want you can check it out. But it's anyways ready made readily available on ticker tape. So let's get back to the screen and here uh let's add one more filter. If you're not sure where it would come ideally it will come in ratios and it is uh but you can also directly search here. Okay. So I'm I'm going to ratios sharp ratio and I'm going to say done. Okay. important higher the better or lower the better higher the better so I'm going to just sort this which are the top three again access liquid fund adas life liquid fund and kotak liquid fund this time okay so top three clear yes now you're saying okay all returns related things clear but what about expense ratio because of course expense ratio lower the better so here again I click here but uh I want to sort it in an ascending fashion from lower to high again access liquid fund at number one then HDFC liquid fund at number two and nipp India liquid fund at number three. Okay."

"Ultimately, I would also want to check the exit ratio for here. If I'm not sure where would it come up, I'm just going to type out exit exit load. Uh I said exit ratio. I think exit load. Uh lower the better. It's exactly the same for all. So no differentiating factor per se, but that's how you choose which liquid fund could be a suitable choice for you."

"First thing we said AUM higher the better. Second thing we said returns. In returns we did one year return, threeear returns. Of course the parameter is higher the better. Then we checked about sharp ratio. Sharp ratio. What does that tell us? How much returns are we generating for a specific unit of risk? Correct. Here again the thumb rule is higher the better. Fourth we checked what is the expense ratio. Lower the better. Exit load lower the better."

"If you want to check, you can also check their holdings. What is their portfolio allocation? Now you can see your uh portfolio allocation goes something like this. Almost more than 50% in commercial paper. Almost 36 37% in certificate of deposits. You have in treasury bills, corporate debts, whatever. But where which which companies commercial paper or certificate of deposit or treasury bills here you can see I'm just going to click on see all you can see these debt instruments of which companies be kra bank Indian oil corporation limited HDFC bank Reliance Geo Infocom la you can see the list right very important you have to check what is the credit rating you can see here crystal A1 IRA A1 care A1"

"Now whenever you get a rating of A1 what does this mean typically A1 rating is given for short-term instruments and it it signifies it I mean it signifies is short-term safety as well as very low credit risk. So all in all will be considered as good. So always remember you can also go and check the holding and see the credit ratings as well."