Apart from investing in mutual funds, investors must also consider liquid funds. This is the best option for short-term investments. Liquid fund is basically an open-ended debt mutual fund scheme that mostly invests in instruments like treasury bills, government securities, and call money.
The best part of these funds is that they get matured within the time period of 3 to 6 months. Also, the investors have the opportunity to enter or exit whenever they want in this fund. It involves low risk and higher returns than the banks.
Here are a few reasons that every investor should invest in liquid mutual funds:
1. In the liquid funds, there is no lock-in period, which means you can get them converted into cash whenever you are in need of the money. But you need to get it done only during the business hours.
2. Even the withdrawal is easy in liquid funds. It can take place within 24 hours for the convenience of the investors.
3. Also, these funds have the lowest interest rate risk in comparison to the other debt funds.
4. While investing in liquid funds, investors are also going to enjoy various valuable tax benefits.
5. Being an investor, you are also going to enjoy the higher returns. It offers an average return of about 8% per year.
As it involves higher returns and less risk, the investors should think about investing in a liquid fund. Keeping all the above-mentioned benefits, they can consider investing in these funds and they will enjoy various advantages. But it also involves some risks for the investors.
The investments in the liquid funds made by the investors are made into securities that come with a market price. And so, the Net Asset Value of your funds fall and rise totally based on the changes in the securities’ market price. But it does not fall or rises as drastically as other funds, which is the best thing about these funds.
Keeping all the other types of mutual funds in mind, liquid funds involve the lowest risks. And considering it to be a short-term fund, in comparison to its short period, the returns the investors get are not bad. It is good for investors to think about investing in such a fund. And it is also going to diversify their portfolio of investments.
If the investors can bear the risks of long-term plans, it is not going to be tough for them to incur the losses of this short-term plan. But before any investment, the investors are required to be clear with their objectives so that they can successfully meet their expectations. There are different plans for different objectives. So, they need to know their goals and then invest in any of the plans for desired returns.
Your fund manager is going to help you in choosing the right plan for you. So, you can discuss your goals clear with them for better assistance and the best returns.
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