Liquid funds in India are debt funds that invest in money market instruments producing short-term fixed interests. The instruments include commercial papers, treasury bills, and similar having a maturity period of 91 days. In other words, debt mutual funds, which primarily invest in short-term debt securities and pay fixed returns, are called liquid funds. Since they do not have a lock-in period, the assets invested are not tied up for long.
Liquid funds in India help you get a higher degree of liquidity and, therefore, require careful calibration while investing. If you do not possess prior knowledge, you can take help from financial advisors like FinEdge to make calculated investments in liquid funds in India.
How Do Liquid Funds Work in India?
As liquid funds aim to provide higher liquidity, fund managers invest in quality instruments giving higher credits. The proportions allocated are as per the investment purpose of the fund with an average portfolio maturity of three months. It reduces the exposure of fund returns to changes in interest rates. The value of the fund does not experience many fluctuations. Besides, the maturity of the underlying securities is matched with portfolio maturity, further helping deliver higher returns.
Liquid funds in India are a great choice to park your idle cash. They are harbors of low risk, which give higher returns than a savings bank account. Most of the time, liquid funds imitate the liquidity facet of a savings account. Such funds do not have exit loads, so it gives you the right to withdraw funds as per your convenience.
Benefits of Liquid Funds in India
Fixed Returns
As liquid funds in India invest in debt instruments offering fixed interest rates, the returns of investments are static. In return, you can get the principal sum combined with fixed interest rates offered by the instrument when the securities mature.
High Liquidity
Liquid funds are volatile in nature due to the short term maturity of the underlying securities. You can redeem the amount invested as per your convenience as there is no lock-in period on fund investment.
No Exit Load
A positive point to the volatile nature of funds in India is that when you withdraw the amount invested after a few days of investing, there is no applicable exit load.
Low Risk
The liquid fund investment portfolio consists of short-term money market tools. It offers the highest maturity of any security investments in 3-months, which effectively protects your portfolio against interest rate shifts; thereby making funds in India a low-risk commodity.
Higher Returns
Liquid funds in India have gained popularity, especially amongst retail investors, as it delivers higher returns than any bank’s savings account. It is also the reason why investors park their idle capital in liquid funds.
How to Choose the Best Liquid Funds in India?
Consider the following tips to select the best funds in India, which can grow your money manifolds:
- Review the performance history of the growing funds in which you want to invest
- Select those investment options having debt securities that are highly rated by CRISIL
- Consider average maturity of investment portfolios
- Choose the funds having a lower expense ratio, to increase overall returns
Managing an investment portfolio often requires efforts and extensive knowledge of various instruments. Choosing a reliable financial advisor like FinEdge to manage your portfolio is a wise decision, which also increases your returns with proper management and asset expertise. They assist you in getting acknowledged with the right investment options. Their credible team ensures that you are treading the right path and helps maximize your profits.
