Liquid funds are open ended schemes that invest in debt and money market instruments with maximum maturity of up to 91 days only. Liquid funds can help us earn much higher rates than what the savings deposits offer without compromising too much on how quickly we can get our hands on the cash. Liquid fund have credit ratings which make them safe i.e. less risky for investors.
It is considered as the least risk category in mutual funds, as it does not invest in long term bonds and does not get affected by interest rates movements. The reason that this is considered as a safe bet is because it is generally related to the government sector which can be considered to have a consistent performance. These liquid funds also do not take a long time to mature and can be redeemed in liquid in a single day. People even park their money in a liquid scheme for as less as 2-3 days’ time.
Advantages of liquid funds:
- No entry or exit loads applicable.
- Easy redemption. Takes less than 24 hours.No lock-in period
- Investment in short-term debt securities minimizes the interest rate risk.
- Includes plans like daily, weekly and even monthly dividend plans.
The last one year return of these funds has been in the range of 7%-8% so one can expect such returns in future. Liquid funds come with different plans like growth plans, daily dividend plan, weekly dividend plans and monthly dividend plans. Growth plans don’t declare any dividend, and appreciation of fund is reflected in higher unit value. In liquid funds with dividend plan one get a tax relief on dividend payout.
Mutual funds are answer to your every investment requirement so one need to invest properly. Just know your priority well and only then park your funds wisely.
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