Tax implications of Liquid Funds

I think the way you are investing in mutual funds is a bit complicated. You should have kept it simple.

Currently, you have invested in liquid funds and then redeeming Rs. 15,000 to fund your two SIPs in balanced and ELSS funds. Instead of that you could have simply put the amount in respective liquid funds of AMCs in which you are doing the two SIPs and then opted for STP. In that case there would not have been any need for redeeming the liquid fund and sending the proceeds to your bank account.

For example – Suppose, you are doing SIP in SBI Balanced Fund from the bank account where you are sending your liquid fund redemption proceeds now. You could have invested in SBI Liquid fund and done STP to SBI Balanced Fund on a fixed date or weekly basis. By doing this you could have eliminated the process of redeeming the liquid fund every month.

You have written about redeeming balanced funds after one year at an opportune moment. Please note that to invest in balanced funds you need to have an investment horizon of 3 years or more. Therefore, your idea of redeeming the balanced funds and then again start the investment loop – invest in liquid, redeem and send to bank account and then do SIP again – is complicated and may not yield the desired results. Instead of that, if you let your balanced funds and ELSS remain invested for medium to long term, chances are that you will get better returns than your expectation and also benefit by compounding.

Mutual funds investments in equity and balanced funds are for the long haul and churning and shifting or switching more often from one fund to another will not only complicate the process but shall also affect the returns.

With regards to liquid fund investments and it taxation do read these –

https://www.advisorkhoj.com/articles/Mutual-Funds...

https://www.advisorkhoj.com/articles/Mutual-Funds...

https://www.advisorkhoj.com/post-your-queries...

If you continue to remain invested with your ELSS and Balanced fund investments for 3-5 years horizon, you can expect more than your expected return of 10%!

Hope you find the above helpful. Thanks