The topic will be in the discussion for investors how ICICI liquid funds can be an option for accumulating your emergency fund. As you well aware emergency fund is one of the most important fundamentals in financial planning.
A liquid fund is the best option in investing in emergencies. Since it has very low risk compared to other debt and equity mutual funds. Also, it has high liquidity and you can withdraw till 90% of your investments immediately.
As liquid funds hold only treasury bills, government, corporate bonds which has a maturity period of 91 days. So, the volatility is very minimal. It doesn’t require a huge knowledge of handling these funds.
WHY LIQUID FUND FOR EMERGENCY FUNDS?
· Liquid funds produce a stable return which will be higher than a bank, FD, and RD interest.
· The average 5 year return is 7% to 8.5%
· There are many funds that can be started with a minimum of Rs. 500 every month as systematic investment plan.
· The expense ratio is very low compared to other types of mutual funds.
· Unlike FD and RD, it is not necessary to deposit every month. You can start and stop SIP at any point time.
· Highly liquidable and very low risk if selecting a fund which holds maximum government and CRISIL AAA rating bonds.
· The performance of the graph will be flat in growth and there are no ups and downs.
ICICI LIQUID FUND – OVERVIEW:
· The fund holds the AUM value of Rs. 54, 835 Cr.
· The fund can be started by a minimum of Rs. 100 as SIP.
· Expense ratio of the fund is 0.20%.
· It is 7 years old fund, with 7.65% returns per year from inception.
· The 1, 3, 5 years performance is higher than the category average.
· Out of the top 10 holdings, 6 holdings are Reserve bank of India bonds.
· Other 4 holdings are CRISIL AAA rating.
· In top 20 holdings, 8 holdings are from RBI bonds.
· This funds hold AAA rating and government bonds in the majority.
· The top 20 holdings share almost 51% and there are total of 100 securities in this fund.
· The yield to maturity of the fund is 4.83% and the average maturity period is 0.13 years, which is 1.5 months.
ICICI LIQUID FUND – PERFORMANCE:
The above image will demonstrate the performance of ICICI liquid fund vs the category average.
The funds year on year performance are
· 2014 – 9.18%
· 2015 – 8.42%
· 2016 – 7.70%
· 2017 – 6.69%
· 2018 – 7.47%
· 2019 – 6.67%
On a constant, the fund has performed at the rate of 7.65% vs the category average of 6.84%.
The fund has maintained its performance more than 6.5% per annum over all the years.
The 5 years performance is 6.88% vs 6.68% of the category average.
INSIGHTS FOR INVESTORS:
· Investor should choose liquid funds mainly for accumulating emergency funds.
· Even the emergency fund should yield more than bank savings account return. Also, it should be highly liquidable like a bank.
· It is not to promote ICICI liquid funds for an emergency fund. It is a model of analyzing on how to choose a liquid fund.
· There are many liquid funds which are performing more than this fund, but here we have made your mind clear on choosing a liquid fund with the majority of RBI, government, and CRISIL AAA-rated bonds.
· Since, emergency fund is not an investment option. It is not necessary to beat the inflation by performing 8% P.A. It will great when it yield us returns more than an RD and FD.