Liquid Funds : A Boon For The Short-term Investors
The liquid funds fall under the debt category of mutual funds, which have a value equivalent to cash in hand. The graph of the liquid funds always trends upwards even if the market shows a falling trend. Liquid fund is the only scheme in mutual fund which is unaffected by the market fluctuations, at the same time providing the flexibility of redeeming your money anytime. Along with the liquid nature of the scheme an investor is free to withdraw the required amount and to leave the remaining amount to avail the benefits stated in the scheme. For example, if a person invests inr 30,000 in a liquid fund. And due to some urgency he wants to withdraw inr 10,000. Then, he has the freedom to do so. The client can withdraw the required amount and leave the amount left after withdrawal (inr 30,000), for growing. Unlike, other mutual fund schemes it is not compulsory to withdraw the entire amount in the liquid funds. The liquid fund provides a growth rate of around 9% which is quite higher as compared to bank deposits.
The liquid funds undoubtedly provide a better option for the investors who have short-term growth perspective. But, it is equally important to know that how the money under the scheme is invested. The money invested in the liquid funds is put in the commercial papers, certificate of deposits, treasury bills, etc. The commercial paper is a promissory note which is issued by the company committing to pay the face value to the holder on the maturity date. In the same way a certificate of deposit is also a promissory note issued by any bank and makes the holder eligible for availing interest.
Liquid funds can indeed be called a pocket size power house of the mutual fund industry. It is an avenue of investment for the clients who have an extra amount at present which will be required in the near future. The liquid fund is a scheme which serves as an alternative to the negligible interest rate on the bank deposits. By investing in the money market instruments like treasury bills, certificate of deposit, bonds, and securities of various corporate and public sector undertakings. The investments in liquid funds are absolutely safe as there is no involvement of equity. The liquid funds are named so as they provide a higher degree of flexibility in investment. This means that people are free to invest and redeem their money according to convenience. All other schemes involve a penalty on early withdrawal known as exit load. But, liquid funds are free from it. The client can withdraw before the stipulated time period without paying any extra cash.
The liquid fund has been trending speedily in the field of short-term investment owing to its various benefits. Along with becoming the most preferred investing solution it has been able to cater the best returns to the clients.
The following points elaborate the inside out of liquid funds:
- Easy investment and redemption make the investing process a piece of cake.
- The absence of equity element makes it secure and saves an investor from the unnecessary worries.
- Partial withdrawal facility is only available in liquid funds.
- There are sub-categories in the scheme like daily plan, monthly plan or growth plans making it easier for the investors to identify their needs and invest accordingly.
- There is no exit load on early withdrawal making the investments penalty free.
- The maturity of liquid funds is generally 91 days, which means if the client does not withdraw the money from the scheme it will automatically mature after three months.
Hence, invest in liquid funds and park your surplus money for short-term in the mutual funds.
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