Why liquid fund investment?

Liquid funds are primarily debt mutual funds. These funds are primarily designed to be an apt replacement of savings account. But, buying these funds involves market risks. However, over time, these funds have offered short-term bonds that let you protect your money during the time of inflation or any movement in the market trends.

Liquid funds are for those investors who wish to park their finances for a shorter period. Investors who have an appetite for low risk and want to fulfil short-term goals. While these funds give higher returns than savings account their returns are similar to fixed deposits.

Having said this, the liquid funds do come with their own set of benefits. Few of them are listed below:

• Offers lower risk than any other debt funds
• Offers higher liquidity
• Offers instant withdrawal of funds

Let us take a look at the points mentioned above in detail:

Lesser Risk:

Liquid funds carry the least level of risk. The nature of liquid funds makes them less volatile to market fluctuations among all kinds of debt mutual funds. The maturity period is short, and thus, investments are made in this fund usually tend to face no loss, whatsoever. The liquid funds ensure that the investors invest in more instruments that are high in credit ratings.

High Liquidity:

As the name suggests, this fund provides unmatched liquidity and thus makes it an apt fund for investors to invest in. The short period of maturity allows the investor to withdraw their investments with the profits to-the-date, in case of an emergency. On redemption, your investment from liquid funds is credited to your account within 1-2 days.

Instant Redemption:

Another benefit of investing in liquid funds is because of its instant redemption. You can manage these funds via online, and thus, it makes it easier for the investor to transfer the invested amount to their bank account instantly. The only thing that investors should mind here is, the capped amount for instant redemption by SEBI (Securities and Exchange Board of India). In liquid funds, investors can redeem up to Rs. 50,000 or 90% of their entire portfolio value, depending upon which is lower.

Thus, liquid funds are an ideal investment if the investor wishes to invest spare cash for a short period and earn good returns. Investors with a higher tax bracket can opt for these funds. Liquid funds have proven to be an ideal alternative to short-term fixed deposits.

About This Author

Shaheen Shaikh http://www.adrclinic.co.uk Joined: April 29th, 2018