Everything you want to know about liquid mutual funds

Posted by swarali chavan on April 21st, 2019

Mutual funds today are considered as the best investment option for investors as it allows them to reap maximum benefits owing to its diverse portfolio. The portfolio is a mixture of shares and bonds. Plus, you also get professional management of funds as the fund manager take decisions on your behalf.

Mutual funds:

You can invest in mutual funds in two ways – lump sum or SIP investment. Lump sum investment means investing the entire money in one go while SIP inculcates a saving behaviour as you can invest at regular intervals on a predetermined date.

Mutual funds are further classified as – equity, debt, and hybrid funds. Each of them has a sub-type. Of them, debt funds are popular amongst everyone as they are less volatile, and the returns are decent. It is ideal for short-term or mid-term horizon investors. The sub-type debt fund that every investor opts for is liquid funds. What is liquid fund?

Liquid funds:

They invest in both debt and money market instruments which holds a maturity up to 91 days. Some of the examples of liquid funds are call money, Government securities, and treasury bills.

Who should invest in liquid funds?

If you want to park your money in a place for a short time and is a risk-averse person, then go for liquid funds. These funds offer higher returns than a savings account but same as fixed deposits. The profits are lesser than balanced and equity funds, which does involve high risks.

Is there a cut-off time for liquid funds?

The cut-off time for liquid funds is similar to that of debt funds, i.e. 2 PM. If you submit your proposal before 2 PM, you will get NAV of the previous day. If you invest after 2 PM, you will get NAV on the same day.

What are the benefits of liquid funds?

• Liquid funds carry the least risk and are hardly volatile among all types of debt mutual funds. This is because they have a short maturity period.
• They offer high liquidity as these funds are invested for a shorter period. So, investors can redeem their funds as and when needed. Within two days you receive the amount.
• Some liquid funds offer immediate redemption. In case the investor places a redemption order online, they get the proceeds immediately. However, SEBI has capped the redemption amount to INR 50,000 or 90 per cent portfolio limit, whichever is lesser.

Can you do SIP in liquid funds?

SIP investment in liquid mutual funds is a possibility. In fact, you earn more returns through this method than a savings account. Also, there are no entry or exit loads as is the case with equity funds.