Liquid funds are simply debt mutual funds that invest your money in very short-term market instruments such as treasury bills, government securities and call money that hold least amount of risk. These funds can invest in instruments up to a maturity of 91 days. The maturity is mostly much lower than that.
They are least risky as well as least volatile in the category of mutual funds for the following reason: one, mutual funds mostly invest in instruments with high credit rating (P1+). Two, unlike other funds, the NAV of liquid funds is not volatile as the only change in their NAV is mostly as a result of the interest income that accrues. In other words, given their short-term maturities, these instruments are hardly traded in the market. They are held until maturity. Hence, their NAV only sees a change to the extent of interest income accrued, everyday, including weekends.
Liquid funds are ideal parking grounds when you have a sudden influx of cash either because you have received money from any legal settlement or from maturity of investments. It is noteworthy that liquid funds cannot be a full-fledged substitute for a savings bank account.
Another way to make use of liquid funds is invest your lump sum receipts in them and then opt for a systematic transfer plan to invest in equity funds of your choice. Often, you would use SIPs to invest in equity funds. That is fine when you invest out of your monthly savings. But if you receive a large sum at one go, you can use liquid funds in such instances, to enhance your returns.
Liquid funds could also be used when you have a sudden influx of cash, which could be a huge bonus, sale of real estate and so on. Many equity investors also use liquid funds to stagger their in vestments into equity mutual funds using the systematic transfer plan (STP), as they believe this method could yield higher returns.
Liquid funds score over traditional investment options like savings bank account and short term fixed deposits as they have the potential to provide higher returns.
However, one must choose the right option out of the ones offered by mutual funds like dividend payout, dividend re-investment and growth to enhance post tax returns.
It is important because being a debt fund by definition, a liquid fund is required to pay dividend distribution tax (DDT), before distributing dividends to investors. It is also important to mention here that most liquid funds offer only dividend reinvestment (daily, weekly and/or fortnightly) and growth option.
Some liquid funds do offer dividend payout options, but only for large investments on a weekly and fortnightly basis.
Liquid funds are also a type of debt fund. Compared to other debt funds, liquid funds are the least risky.
Liquid funds are unique with respect to the applicability of Net Asset Value (NAV).
This is one of the most important numbers you should look at while choosing a liquid fund.
Most liquid funds perform similarly. But their expense ratios can vary.
The expense ratio shows the operating efficiency of a mutual fund scheme. It indicates how much of your invested amount is being used to manage the expenses of the fund.
SMART WAY 1: Save up liquid funds.
You will need to save money to hire a Houston divorce attorney.
Also, you may need to move out of your home, in which case you will need a deposit of first and last month’s rent.
SMART WAY 2: Retain a good divorce attorney.
If you have an electrical problem, you call an electrician.
If you do not, you might get electrocuted.
Debt mutual funds have been increasingly popular in the recent years.
Different types of debt mutual funds:
Over the years, debt funds have evolved into something very broad.
Liquid funds are generally used by investors to park excess amounts of money for a short period of time.
Though this may seem less than other debt funds, liquid funds actually have a lot of benefits such as liquidity, etc.
Such funds are suitable for those with a low to moderate risk appetite, and a short-term investment horizon.
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Nowadays, buying and selling items is relatively simple.
Purchasing a home can be accomplished in one of two ways.
The first choice is straightforward: go to the house owner and pay the balance if you have liquid funds.
The second alternative is to borrow money from a bank.
Various logging equipment financing options are available today that make it simple to buy or sell a commodity.
You must have encountered multiple terms and conditions when purchasing an entity, whether a house or another valuable item.
