You are busy making money day and night whilst cumulating savings side by side. Everything is going smooth now but will this situation hold the phone for long? No, we guess. Nothing remains same forever, time changes and so do circumstances. You never know what’s going to happen in future, so why not stay prepared with an umbrella for a possible rainy day condition. The best kick is to make most of your savings by investing them in liquid mutual funds. Before proceeding towards why one should invest in liquid funds, let us get the hang of what liquid mutual funds are.
Inside Dope of Liquid Funds:
‘Liquid’ as the name suggests are those assets that are as good as hard cash. Liquid mutual funds are debt funds that invest in money-market instruments which are meant for short-term borrowing and lending. These money-market instruments can be treasury bills, certificate of deposits, bank fixed deposits, commercial papers and other debt securities. Because these funds are short-term debt funds, the possibility of interest rate fluctuations get reduced which in turn mitigates the risk.
Advantages of Parking Surplus Money in Liquid Funds:
- Lower Risks: The most crucial factor to consider investing in liquid funds is that they are least risky as they hold quality papers. Another substantial reason is that their NAV (Net Asset Value) does not fluctuate much as the change in NAV is predominantly because of the interest build up. Liquid funds invest in very short-term money-market instruments, so they are not actively traded in the market.
- No Lock-in Period: These highly flexible funds are ideal to line up your money from a few days to a few weeks. They have no lock-in period unlike other funds, hence they follow up the strategy of ‘Invest anytime and withdraw anytime.’
- Tax Efficient: We all know that Short-Term Capital Gains tax is applied to liquid funds with growth plan, which are held for less than a year, according to the tax slab that one falls in. But in the dividend Liquid funds, investors are not liable to pay the tax, which makes them a more lucrative choice for investment.
- Better Returns: Your money that is kept safe in fixed deposits of banks will fetch you a maximum return of 7%.Other than this, you will have to bear a lock-in period of three years or more; withdrawal before completion of which will incur a penalty. But in case of liquid funds, you don’t need to bear any lock-in period, and returns are comparatively more than that of the bank deposits.
- No Loads: Most liquid mutual funds do not have any entry or exit load which makes it easier for an individual to have smooth access to the cash whenever required urgently.
Let Us Have a Look at The ‘Cream of The Crop’:
If you are looking for the liquid funds that can help create an emergency back up, then here are some of the best liquid funds suggested for you:
- Reliance Money Manager Fund Growth: Launched on March 20, 2007, this fund kept on growing with an objective of generating matchless returns with moderate risk tolerance. Investment is done in debt and money-market securities in order to make it least volatile. It is an open-ended scheme that has given 8.21% returns since inception which is more than the returns given by fixed deposits.
- Franklin India Treasury Management Account-Super Inst. Plan G: This is an open-end liquid plan that endeavors at providing current income along with high liquidity. Launched on April 29, 1998, this fund has managed to give better returns by doing 100% investment in debt and money-market instruments. Those who are looking for funds with lower to moderate risk tolerance and average return can opt for this plan.
- SBI Magnum InstaCash Fund G: This liquid fund aims at providing a short-term wealth management solution. Investors who have the same purpose of investing the surplus cash can invest in this scheme. Investment tenure can vary according to the investor’s choice, i.e., from 1 day to 1 month. Fund manager Rajeev Radhakrishnan has managed to invest in quality money-market securities so as to avail higher returns than the benchmark.
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After going through this article, if you are at least thinking of making an investment in liquid funds to deal with any bad patch in future, congratulations! You are a step ahead than those who have just one motto- ‘Here’s today, gone tomorrow, in future we can beg and borrow’!
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