All investors can benefit from liquid funds, which provide liquidity that is much needed. These debt funds are designed for short-term investments, ranging from one to 90 days. These mutual funds provide a greater return than a savings bank account, which has an interest rate of around 3%. A liquid fund is a better choice if you want to store your money for a while. These funds allow redemption on a T+1 settlement basis. If you submit a redemption request within a working day, your money will be available the next day, unless it’s a holiday. You can see liquid assets provide the convenience and potential for higher returns while also offering the convenience of a savings account. Don’t you think liquid assets are great for everyone?
Who should invest in liquid funds?
- People who have excess cash in their bank. Your employer may have given you a bonus and you can put it in a liquid account until you decide what to do with it.
- People who are planning to go on holiday or looking to buy an expensive item but have not yet saved enough money.
- People who recently sold their property and wish to take some time to make another investment in real estate. These people can put their money in a liquid account and get a reasonable return over the interim.
- Investors who are looking to invest in equity funds when the market has been falling for some time. These people feel that there is still some correction, but they aren’t sure. You can then go for a STP (Systematic transfer Plan), which involves putting your money in a liquid account and then doing an STP into the equity fund you desire.
- Anyone with money in the bank that can be used for an upcoming expense within the next few days, or weeks, can
Although liquid funds are not part of long-term financial planning, they can be a great way to earn an extra return.
Liquid fund have the lowest risk and are most volatile of all mutual funds. Liquid funds invest in short-term high quality debt securities, making them less susceptible to interest rate risk than other debt funds. According to SEBI guidelines, securities that mature in less than 60 calendar days do not need to be valued at mark-to market. Liquid funds have higher NAVs than other mutual fund schemes that are affected by market movements.
Like other mutual funds, liquid funds don’t usually have an exit or entry load. Because liquid funds are easy to buy and sell, they offer a more attractive alternative to savings bank deposits. There is a greater risk associated with higher returns. A liquid fund portfolio may have one or more securities that are subject to a credit downgrade, which could impact its market price. If the average maturity of the fund is longer than two months, this can cause some value loss. Liquid funds tend to invest in securities with high credit ratings. You can choose to invest in liquid funds that have a short maturity so you are more secure.