Benefits of Liquid Funds

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This article discusses the myriad benefits of investment in liquid mutual funds.

TLDR Points

• A liquid fund provides high liquidity in the short term while keeping your initial investment safe.
• A typical portfolio is tied to debt securities with maturities up to 91 days.
• You can get decent returns in a short span.
• Great to manage your salary and expenses if you want to splurge occasionally.

“Liquidity is oxygen for a financial system.” — Ruth Porat (CFO of Alphabet Inc. - Google Inc.’s parent company.)

Say you receive your paycheck on the 1st of every month, and by the 18th, you have cleared off your bills. However, the funds are mostly idle from the 1st to the 18th.

An investment in liquid mutual funds can offer excellent returns during the short-term. Whether it is that latest gadget you have your eyes on or that solo trip you wish to embark upon, liquid fund investment is the answer to all of your questions.

But first, let’s understand what they are and delve deeper into the host of opportunities they bring to the table.

What are liquid funds?

Even if you go for a one-month investment, a liquid fund is a mutual fund scheme with assured higher returns. You can even withdraw the money at any time you want, and there is no lock-in period.

The primary purpose of liquid mutual funds is to provide high liquidity in a brief period while keeping your initial investment safe.

How does liquid fund investment work?

These funds are tied to debt instruments offering high credit quality in the short term. On average, the maturity period for such money market instruments is 91 days. However, liquid fund investments come free of exit loads, which means that you can even invest for one day and get returns.

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Benefits of liquid funds

Here is a look at why an investment in liquid funds is a good idea:

1. Higher Returns

   The average liquid fund returns range anywhere between 6-8%, which is comparatively higher than other investment options.

2. Short-Term Goals Funding

   Are you planning for your anniversary in the next two months? Or craving for a vacation with your family in Europe next summer? You can upgrade your lifestyle with liquid funds.

3. Effective Salary Management

   Instead of letting your monthly paycheck sit idle, invest in liquid mutual funds. The comparatively shorter spans allow for decent earnings to pair with your salary.

4. Efficient Expenses Planning

   Let’s say you are an entrepreneur who needs to pay a salary of Rs. 5 lakh to your employees on the 5th of every month. Even if you park this amount for ten days in a liquid mutual fund, you will earn an interest of 7%. Can you imagine where that would take you in 10 years? You can plan your expenses efficiently to invest in liquid mutual funds and never let your money sit idle.

Conclusion

There are even more benefits of liquid funds. You can access these funds whenever you need them without any exit charges. Ask yourself – what good is money that you can’t access when in need? Liquid funds have now become the most efficient way of liquid cash handling. Try out liquid fund investment for yourself today!

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