What are Liquid Mutual Funds?

Are you looking for an investment option to fulfill your short-term investment needs? Everybody needs to keep some money for sudden emergencies. Keeping some money in a liquid form helps you a lot during emergencies, but most of the time, it lacks the opportunities for substantial earnings. If you have some excess money in your hand, prefer to invest it in short-term investment choices other than fixed deposits, and then you can choose liquid funds. It is a better option to earn something other than holding a large sum only in your savings bank. Read this post to get an idea about what liquid mutual funds are.

Liquid mutual funds

Liquid funds are a type of debt mutual fund that invests in short-term money market instruments help investors to earn fixed-income. The fund managers choose government securities, treasury bills, Commercial papers, bank fixed deposits etc. to invest the money to get better returns in short term. If you choose liquid funds, it invests in instruments for a maximum period of 91 days. These funds are among the least volatile and least risky mutual fund category. The NAV of this mutual fund type is not volatile, and the only reason for the change in its NAV is due to the interest income that accrues.

Features of Liquid funds

Liquid funds traded very rarely in the market, but these funds held until maturity. Compared to fixed deposits, an investor can earn a little more interest in liquid funds for a short period of parking his or her money. A notable feature of this mutual fund category is that you can exit this scheme anytime without any exit load. But, the bank charges a penalty for fixed deposits, if you withdraw money before the maturity period.

Many investors invest their lump sum in liquid funds and later choose a suitable equity fund scheme for a systematic transfer plan (STP). Most people use SIP when it comes to investing in equity funds. But if you receive a large amount of money at one go, you can consider liquid funds as it is a better way to increase your returns. But investing in ultra-short-term funds can be a better suggestion if the holding period is more than three months. Invest lump sum in this type of fund if you have a holding period of six or nine months. Investors need not worry about timing the market in such cases.

For easy liquidity

A debt category of mutual funds, liquids funds are a favorite choice for many retail investors because of its easy liquidity and higher returns than a savings bank account. People prefer to invest in it as they can receive their money in their bank account without any entry or exit load within a working day once they give the request for redemption. Choose this investment instrument if you plan to park your money for a short period of time. It is a great choice to invest your money from one day to less than six months. Since liquid funds invest in high credit rating (P1+) instruments, it carries least volatility and lowest risk.

You cannot predict the exact time when you need money to overcome an urgent situation. At the same time, you do not want to keep the surplus money in your safe or as a fixed deposit. You can invest in liquid funds during such situations. By choosing liquid funds, you can park your money for a short period of time without losing its investment value. The advantage of investing your money in liquid funds is that it can provide you good returns with full flexibility of its redemption time.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh