While investing, securing the best combination of liquidity, safety, and reasonable returns may be one of your top concerns. If you have idle money that you wish to invest to earn returns but still have quick access to, liquid funds are an ideal option.
These mutual funds are specifically designed to offer high liquidity, minimum risk, and reasonable returns, and hence, they are a favourite among short-term investors who are looking to park surplus cash.
What are Liquid Funds?
Liquid funds are mutual funds that invest entirely in short-term debt securities, typically with maturities of 91 days or less. Treasury bills, commercial papers, and certificates of deposit are some examples. The primary objective of liquid funds is to preserve capital while providing returns and making it convenient for you to get your money whenever required.
Essential features of liquid funds
Liquid funds offer you various benefits, including:
- Instant liquidity
Liquid funds enable you to withdraw your money instantly. Redemption requests are usually settled within a business day, and your money is credited to your bank account immediately. They are an excellent option for parking emergency funds or funds you might require soon.
- Low risk
Liquid funds carry low risk since they invest for a short period in high-quality debt instruments. They are less volatile than equity funds and less risky than other debt funds, such as dynamic bond funds or short-term funds.
- Competitive returns
Although low-risk, liquid funds typically have higher returns than fixed deposits and savings accounts. In recent times, liquid funds have returned around 6% to 7% per annum, making them an excellent option to park your surplus funds.
Why should you choose liquid funds?
Liquid funds are particularly suited for:
- Parking funds that may be required within weeks or days.
- Quick accessibility to money on short notice for unforeseen needs.
- Balancing working capital with investments.
- Parking cash temporarily while awaiting a decision on longer-term investments.
How should you use a mutual fund calculator?
A mutual fund returns calculator is handy to calculate how much you can earn on your investments in liquid funds. Once you enter information like initial investment, expected return rate, and investment duration, you can see how your funds can grow over time. This helps you plan more realistic financial goals and optimise your investment plan.
Conclusion
Liquid funds are an excellent choice if you seek a secure, fluid, and relatively rewarding investment avenue to park surplus funds. They offer instant access to your money, are comparatively safe, and provide higher returns than regular savings accounts.
Whether saving for an emergency, transitioning between investments, or simply investing your idle cash, liquid funds are an easy and reliable solution. Adding liquid funds to your mutual fund investment portfolio can help balance your overall financial plan.
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