Top five benefits of investing in liquid funds
If you are an investor who wants to invest for the short term with minimal risk, you should consider investing in a liquid fund. It is a type of mutual fund that offers safety, liquidity, and stable returns. You can use it to park your surplus funds for the short term. Liquid mutual funds invest in debt instruments like treasury bills, commercial papers, and certificates of deposit with maturities of up to 91 days.
Here are the top five benefits of investing in liquid funds:
1. High liquidity
As the name suggests, liquid funds are highly liquid, making them an ideal choice for you if you need quick access to your funds. They let you redeem your capital instantly. A majority of the mutual fund houses process redemptions of liquid funds within 24 hours of a business day, ensuring that it is readily available when the need arises.
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2. Better returns than savings accounts
While you cannot compare the returns with high-yielding equity-based mutual fund investments, liquid funds provide you with better savings than traditional savings accounts. This makes them a lucrative alternative for your idle capital. You can also consider them to meet short-term financial goals or to temporarily park your surplus funds.
3. Low-risk investment
Liquid funds are considered one of the safer categories of mutual funds, as you invest in short-term debt instruments issued by high-credit-rated entities. Your investments are less likely to be affected by market fluctuations, which minimises your risk. If you are a risk-averse investor, liquid funds offer a secure and stable option without the volatility associated with the market.
4. Flexibility and accessibility
Liquid funds offer you particularly good flexibility. You can invest and redeem with ease, making them a convenient option for managing your cash flows or emergency funds. Moreover, fund houses offer mobile apps and digital platforms, helping you with seamless transactions. This makes sure that liquid funds are a hassle-free investment option, no matter your investment background.
5. Capital preservation
Liquid funds are designed to prioritise capital preservation. Since they invest in short-term, high-quality debt instruments, your investment faces minimal credit and interest rate risk. This feature makes liquid funds an excellent option for parking surplus funds while ensuring your capital remains secure and earns steady returns.
Why choose liquid funds over fixed deposits?
Liquid funds provide you with better returns and higher liquidity over fixed deposits, making them an exceptional alternative for short-term investments. Additionally, you will face no penalties in case of premature withdrawal, unlike fixed deposits.
Conclusion
Liquid funds play a key role in a well-rounded investment portfolio while offering you a perfect blend of safety, liquidity, and returns for your short-term financial needs. Whether you want to park surplus capital, create an emergency fund, or enjoy higher returns on idle funds, liquid mutual funds are a smart and efficient solution. If you are seeking more tailored advice, you can consult a financial advisor and explore the wide range of mutual fund investments available in the market.
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