Do you want to keep your money safely for a short period, with still the possibility of growth? Liquid funds might be the investment option you’re looking for. In this article, let’s discuss what liquid funds are, how they work, and how they can fit into your short-term risk-free investment strategy.
What Exactly Are Liquid Funds?
Liquid funds are a type of mutual fund. Also known as debt funds, they invest in short-term debt instruments with maturities of up to 91 days. Liquid funds offer potentially better returns while also allowing you to keep your money accessible.
When you invest in a liquid fund, your money is pooled with that of other investors and allocated across various short-term debt instruments. The manager of the fund selects these instruments based on credit quality and maturity period to ensure safety and liquidity of your investments.
These funds invest in instruments like treasury bills, commercial papers, government securities and certificates of deposit, among others. If you wish to liquidate your investments, it can be done quickly and conveniently. Liquid funds usually get redeemed within 24 hours.
Your portfolio will have different types of short-term instruments that have low interest rates and risk. Fund managers also keep a track of the portfolio to make sure that it aligns with your requirements. To grow your funds, you need to research and find the best short term mutual funds.
Why Should You Consider Liquid Funds?
Liquid funds offer many benefits for investors who like to create a balanced portfolio. If you want to go for safe and liquid investments with good returns, these debt funds are ideal for you. In this section, let’s understand the advantages of liquid funds:
Low Risk
Since they invest in short-term, high-quality debt, the risk involved with liquid funds is relatively low. These funds are designed to protect your capital while growing it decently. With liquid funds, you also won’t have to deal with high changes in interest rates.
Minimal Exit Charges
Liquid funds offer low exit charges that are usually applicable when you redeem your investments within 7 days. This ensures that you can access your investment money without paying heavy charges.
Moreover, these funds are handled by experienced professionals with nominal expense ratios. This will allow you to increase your profits.
Liquidity
As the name suggests, liquid funds are highly liquid. Liquid funds allow you to withdraw your funds quickly, often within 24 hours. If you invest in these funds, you can convert them into cash without paying major charges like exit load. This makes them ideal for emergency funds or short-term goals.
Better Returns
While returns can vary, liquid funds often offer better rates than other investment options like short term FDs. .
Are Liquid Funds Risk Free Investments?
Liquid funds are known for being one of the most ideal investment options for those who want to invest in stable assets that provide solid returns. If you are someone who wants to invest for short periods and you don’t want to take huge risks, then liquid funds can be suitable for you. You should note that just like any other investment, liquid funds are not entirely risk-free.
You can also consider investing in a liquid fund if you have extra cash that you don’t need to use immediately. Except for storing your surplus money in a savings account, you can invest in liquid funds to get good returns.
These funds can also be used as emergency funds as they don’t involve high risks and are highly liquid. You can access them quickly, ensuring that you get the funds back if you need it in case of emergencies. However, make sure that you research properly and do thorough analysis before investing in liquid funds.
Conclusion
If you’re looking for a low-risk, flexible investment for your short-term needs, liquid funds could be a suitable choice. They offer better potential returns while keeping your money accessible. As always, it’s essential to assess your financial goals and risk tolerance before making any investment decisions.
Happy investing!