Liquid funds are the most popular investment scheme in India that is offering liquidity, security, and good returns, especially for risk-averse investors. Liquid funds are a debt mutual fund that is invested in short-term instruments of the market like treasury bills, commercial papers, and bank certificates of deposit. Being an investor in liquid funds or looking to become an investor in liquid funds, keeping a track of your returns in the right way is of prime importance in tracking your financial growth.
This detailed guide covers returns on investment tracking of liquid funds, and emphasizes the use of SIP calculators online to do your own. Through simple examples in Indian Rupees, you will be able to place the performance of your investment in perspective.
Why Track Returns on Liquid Funds?
Tracking returns helps you gauge the success of your investment plan. Tracking returns keeps your finance goals in line with expected returns on liquid funds. Liquid funds typically generate 3-6% per annum, depending on market levels. While liquid fund returns are predictable, they are influenced by a change in interest rates and economic policies.
Major Indicators in Tracking Returns
1. Absolute Return
Absolute return is the net percentage gain in the value of your investment. It is the right measure to take if you invest money for a certain period of time into a liquid fund.
Suppose that you have invested ₹1,00,000 in a liquid fund and your investment goes up to ₹1,03,000 over a period of one year. Then, absolute return would be calculated like this:
Formula: Absolute Return (%) = [(Final Value – Initial Investment) ÷ Initial Investment] × 100
Here,
Absolute Return = [₹1,03,000 – ₹1,00,000) ÷ ₹1,00,000] × 100 = 3%
2. Annualized Return
Annualized returns equate the gain or loss to a one-year standard whether the investment horizon has been shorter or longer than a year. It is very easy for investors to compare different financial products with the help of annualizing returns.
3. Net Asset Value (NAV)
Liquid funds provide their returns in terms of the Net Asset Value (NAV), which changes every day. Monitoring the NAV from time to time keeps you aware of the performance of the fund.
Calculate SIP Returns on Liquid Funds
Systematic Investment Plan (SIP) is an uniform method of investing in liquid mutual funds, and other mutual funds, with a periodic interval. Instead of investing an amount of money all at the same time, the investors commit to investing the same amount of money with a periodic interval, such as weekly or monthly. Despite the fact that rupee-cost averaging favors SIPs, one must track returns tightly so that investment returns are maximized.
Using Online SIP Calculators
A SIP calculator online simplifies returns calculations by showing the approximate value of your investments based on your SIP amount, tenure, and assumed return rate. Taking an example:
Assuming:
- SIP Amount: ₹10,000/month
- SIP Duration: 12 months
- Assumed Annual Return: 4%
Calculating future value of investment using an online SIP calculator:
Future Value = ₹1,23,000
Total Investment = ₹10,000 × 12 months = ₹1,20,000
Profit = ₹1,23,000 – ₹1,20,000 = ₹3,000
Considering your SIP returns, one tends to appreciate the fact of how your monthly investment adds up as a collective amount within a time period.
Sample Framework to Track Performance of Liquid Funds
Consider the following given sample investments in liquid funds to be made:
Investment Details:
- First Lump Sum: ₹2,00,000
- Monthly SIP: ₹5,000
- Time Period: 1 year
- Assumed Return: 4%
Calculations of Performance:
- Lump Sum Return (Absolute): ₹2,00,000 × 0.04 = ₹8,000 profit
- SIP Return: Using an online SIP calculator, expected profit = ₹1,500
Total Profit = ₹8,000 (lump sum) + ₹1,500 (SIP) = ₹9,500
Total Portfolio Value = ₹2,00,000 (initial) + ₹60,000 (SIP) + ₹9,500 (profit) = ₹2,69,500
Maintaining Track of Returns Over Time
Liquid funds are the most secure with periodic returns compared to equity funds. To monitor returns over a period of time, investors need to:
1. Monitor changes in NAV from time to time.
2. Monitor your portfolio every quarter to monitor performance.
3. Use SIP calculators on websites as an easy monitoring tool.
4. Analyze past returns provided by the Asset Management Company (AMC).
Simple Tips for Successful Return Tracking
– Monitor Growth Parameters: Take into account the growth of your investment from the very start.
– Make Use of Internet Platforms: Internet mediums are generally provided by all fund houses for monitoring investment.
– TDS Check: Dividend of liquid funds is charged at a certain percentage depending on the holding time period of time. Do not let go of any deduction in order to determine the net profit earned actually.
Disclaimer
Investments are also subject to market risks, and return volatility on liquid funds may rely on economic as well as fund performance. The aforementioned calculations and examples are illustrative in nature only. It is strongly suggested that the investors take all risk, advantage, and disadvantage into consideration before coming to any financial decision. Personal advice is recommended to be followed by meeting with a financial planner.
One must monitor returns on investment in liquid cash to be in the best financial condition. By identifying absolute and annualized returns, monitoring movement in NAV, and using SIP calculators online, investors can create portfolio performance. Diversified growth opportunities are available within the Indian financial system, but extensive analysis has to be done. For example, if you are investing ₹2,00,000 in liquid fund with additional SIP monthly investments of ₹5,000 for one year, your portfolio future value can be nearly ₹2,69,500, and you will earn ₹9,500.
Websites make SIP calculators and direct watchlist of funds very simple. But returns are susceptible to external influence and hence need to be recalled while investing.
