If you are looking for a short-term investment with easy access to your money, liquid mutual funds might be the perfect solution. Whether you are a seasoned investor or someone new to mutual fund investments, understanding liquid funds can help you make more informed decisions. Explored here are the benefits of liquid funds, their key features, and how you can start investing in them.
Benefits of investing in liquid funds
1. High liquidity
Liquid funds are designed to offer high liquidity, allowing you to access your money almost immediately. This makes them ideal for parking surplus funds that you might need on short notice.
2. Low risk
Compared to other mutual funds, liquid funds carry a lower level of risk as they invest in short-term debt instruments like treasury bills, government securities, and certificates of deposit.
3. Better returns than savings accounts
Liquid funds often provide better returns than traditional savings accounts, making them an attractive option for investors seeking a balance between safety and returns.
4. No lock-in period
There is no lock-in period with liquid mutual funds, meaning you can withdraw your investment at any time without any penalties.
Key features of liquid funds
1. Short-term investment horizon
Liquid funds typically invest in securities with a maturity period of up to 91 days, making them suitable for short-term investment goals.
2. Low expense ratio
The expense ratio of liquid mutual funds is generally lower compared to other types of mutual funds, which means more of your money is working for you.
3. No entry or exit loads
Most liquid funds do not charge entry or exit loads, making them cost-effective for investors who plan to frequently move their money in and out of the fund.
How to invest in liquid funds
1. Choose a reputable mutual fund house
Start by selecting a reputable mutual fund house that offers liquid funds. Look for funds with a consistent track record and a high credit rating for their underlying securities.
2. Complete the KYC process
Before you can invest in mutual funds, you must complete the Know Your Customer (KYC) process. This involves submitting your identity and address proofs, which can be done online through most fund houses or intermediaries.
3. Select the right liquid fund
Once your KYC is complete, choose a liquid fund that aligns with your financial goals. You can compare different funds based on their past performance, expense ratio, and portfolio composition.
4. Invest online or through an advisor
You can invest in liquid funds online through the fund house’s website or app or through a financial advisor. Decide on the amount you want to invest and complete the transaction. Your investment will be processed, and you will receive units of the fund based on the Net Asset Value (NAV) at the time of purchase.
Ending note
Investing in liquid funds is a smart way to ensure that your money remains safe, accessible, and productive. With high liquidity, low risk, and returns higher than a savings account, liquid funds are an excellent choice for short-term financial needs.
By choosing the right mutual fund, completing the KYC process, and making informed investment decisions, you can efficiently manage your surplus funds while maintaining flexibility. So, whether you are parking your emergency funds or just looking for a stable investment, liquid mutual funds can be a valuable addition to your investment portfolio.