Thursday, October 15
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All you need to know about Liquid Funds

There are times when you would have experienced an influx of surplus funds. In such times you might think of investing them so as to earn decent returns. There are many options available to you such as Fixed deposits, Savings bank account etc. There’s one more option available to you, just like you invest in mutual funds, you might consider investing in liquid mutual funds, a type of mutual fund.

What is Liquid fund?

Liquid funds are open-ended debt mutual funds that invest in financial instruments such as treasury bills, commercial papers, term deposits, and other debt securities that have maturities of 3–6 months. Liquid funds do not have any restrictions of a lock-in period, i.e., an investor can enter/exit whenever he wants. Liquid funds have comparatively low-interest risk associated with other debt funds. Hence, liquid funds enjoy a few advantages like no lock-in period, no entry and exit load, low-interest rate risk, diversification, etc.

Who should invest in liquid funds?

The following types of investors should consider investing in such mutual funds:

  1. Investors looking to park a particular portion of their fund
  2. Investors with a low-risk profile looking to meet their short-term goals
  3. Investors who might need money in the immediate future
  4. Investors wishing to diversify their portfolio

Uses of Liquid Funds

You can use a liquid fund to gain short term returns. Also, if you want money in the near future, then you can invest a part of your savings in liquid mutual funds.You can also use liquid funds to invest a lump sum amount and later stagger those investments as systematic transfer plans, also known as STP in equity mutual funds. You can use it to invest your contingency or emergency fund.

Always align your mutual fund investments with your personal and financial goals, investment tenure, and risk appetite. Happy investing!