ATK
New Delhi [India], June 1: Investing in mutual funds has acquired great popularity over the past few years. Among distinct variants of mutual funds, liquid funds have emerged as a highly preferred option for many. Liquid funds are a kind of debt mutual fund that invests in securities with a short-term maturity period. They are one of the safest investment options in the mutual fund category.
The value of liquid funds is less volatile than other fund types, making them one of the best investment avenues for achieving short-term goals. Here are the top five benefits of investing in liquid funds for short-term financial goals –
* High liquidity
Liquid funds, as the name suggests, are extremely liquid. This characteristic of liquid mutual funds infers that your invested funds can be readily converted into cash. A major feature of a liquid fund investment is that you as a retail investor can redeem your investment at any point without any exit load, typically receiving the redeemed amount in your bank account within 24 hours. This high liquidity makes liquid mutual funds an ideal option for creating a contingency fund or for mitigating unanticipated short-term expenditures.
* Low risk
One of the fundamental advantages of investing in liquid funds is the low risk associated with them. Liquid funds invest predominantly in debt instruments such as government securities, treasury bills and bonds that have a maturity period of up to 91 days. This short maturity period considerably lowers the interest rate risk. Moreover, these funds invest in high-credit quality instruments, ensuring a reduced credit risk. Hence, compared to other mutual fund investments, liquid mutual funds are considered less risky, which makes them an enticing choice for conservative investors.
* Stable returns
While liquid mutual funds might not endow high returns like equity or hybrid mutual funds, they are known for offering stable returns. The returns on liquid funds are relatively less volatile and predictable than equity funds. This stability in returns makes them an ideal financial instrument if you are an investor with a low-risk appetite eyeing to park your surplus funds for a short time period, thereby earning better than savings account interest.
* No lock-in period
Unlike specific kinds of mutual fund investments with a lock-in, liquid mutual funds benefit from no lock-in. This feature endows you with the flexibility to enter and exit the fund at your convenience. This flexibility permits you to manage your investments in a way that best aligns with your short-term goals and liquidity requirements.
* SIP investment route
An important benefit of liquid funds is the availability of the SIP (systematic investment plan) route. With the assistance of an online SIP calculator, you can easily compute the amount you require to invest periodically to attain your short-term goals. This disciplined approach to investing not only assists in inculcating a regular habit but even aids in averaging out the investment cost, thus potentially increasing thorough returns.
Ending note
Liquid fund is a useful financial product for you as an investor if you are looking to attain your short-term goals owing to their high liquidity, stable returns, and lower-risk features. However, for long-term goals, you might consider adding large-cap funds or multi-cap funds from the equity mutual fund category to your portfolio for potentially higher returns.
Note that every investment decision must be made depending on your financial goals, risk appetite level, and investment time frame. It is always recommended to get in touch with a certified financial professional or advisor before making any investment decisions.
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