Thinking of investing in liquid mutual funds in India? These are basically debt mutual funds investing in debt based securities with short term maturities and also those which generate fixed returns. These debt securities include instruments of the money market such as commercial paper, treasury bills, certificates of deposits with maturity periods up to 91 days and so on. The key advantage of investing in these funds is that they come with higher liquidity levels in the bargain. Liquidity indicates the degree of how swiftly you can sell/buy any asset and convert the same to cash.
Liquid funds India aim at ensuring greater liquidity and safety of capital invested. Fund managers usually deploy investments in high-credit quality debt based instruments. The proportions allocated are based upon the investment goals of the fund and the fund managers make sure that average maturities of portfolios stay at approximately three months in the bargain. This lowers overall sensitivity of fund returns towards changes in rates of interest. The fund value does not usually see many fluctuations and additionally the maturity of underlying securities is well matched to the portfolio maturity as well. This helps in ensuring higher returns over the long term.
Liquid funds are a great option for parking surplus or idle money. These are low-risk options which come with better returns than regular savings bank accounts. Liquid funds attempt to mimic the liquidity functions offered by savings bank accounts likewise. Liquid funds also give ample freedom for withdrawal of funds based upon the investor’s own convenience. You can consider liquid SIP funds for this aspect alone.
Major Advantages of Investing in Liquid Mutual Funds in India
There are various benefits of deploying investments in liquid SIP funds including the following aspects:
• Fixed Returns- Since these funds make investments in debt based instruments, they come with fixed rates of interest. The returns from investments in the same remain fixed. With securities maturing, investors get back their principal amount along with fixed interest.
• Higher Liquidity Levels- Due to short term maturities of investments, these funds come with higher liquidity as compared to several other options. The invested amount may be redeemed as per the investor’s wishes without any lock-in periods to factor in.
• Zero Exit Loads- Another benefit is that there is no exit load applicable once investors withdraw their invested amount post 7 days from investing.
• Lower Risk Levels- The investment portfolios of these funds usually comprise of short-term money market instruments. The highest maturities for invested securities usually go up to 3 months which safeguards the portfolio from any changes in rates of interest.
• Better Returns- These funds are steadily becoming more popular amongst investors since they generate better returns as compared to investing in bank FDs or even keeping money idle in a savings bank account. Higher liquidity makes them superior alternatives to savings bank accounts since the returns are higher than regular liquid funds.
Liquid funds have consistently generated returns exceeding 7% historically although they may fluctuate or vary depending upon various factors. These returns are comparatively higher than savings bank account interest rates and even fixed deposit rates in the current scenario.
Must Read: The Salaried Person’s Guide To Better Money Management
