Want to be an Astute Investor? 4 Reasons to Invest in Liquid Funds

by Raghav M. Marketing

 Most of the banks in India offer around 4% interest on a savings bank account. While there are banks that offer 6% and even more, they normally require you to have a higher minimum deposit. While the yield is very low on the savings account, most of the Indians still park their money in these accounts.

As compared to a savings bank account, LFs can be a much better option if you want to park your additional funds or want to create an emergency fund. These funds are highly secure, and they don’t compromise much when it comes to how quickly you can get your hands on your money.

Let us have a look at four reasons that make Liquid Funds ideal for any astute investor.

1.       No lock-in period

LFs are debt funds which invest your money in very short-term debt instruments like treasury bills, certificate of deposits, term deposits and commercial papers. Even though their maturity period is very low, they still do not have any lock-in period. You can withdraw your money anytime you want to business days. The funds are typically deposited into your bank account the next business day. Moreover, they do not even have any entry or exit loads.

2.       Minimum risks involved

As the money is invested in instruments with a very short maturity, the chances of any major fluctuations due to change in interest rate are very less. As compared to other debt funds, the risk is very minimal for these funds. Even the chances of credit risk or default risk are very low due to the short maturity period.

3.       Higher returns

If you have a look at the performance of the top LFs in the past few years, they have delivered returns of about 6% and even more. As compared to a savings bank account, they deliver better returns while still maintaining a high level of safety and minimal risk. Many of the LFs have produced returns higher than that of FDs which charge a penalty for premature withdrawal.

4.       Taxation benefit

The funds are also tax-efficient when compared with a savings bank account. The long-term capital gains from these funds are taxed at 20% after the indexation, and the short-term gains are added to the investor’s income and are taxed as per their income slab. If you are in the higher tax bracket, this tax structure of LFs can be of great help to you.

Liquid Funds carry negligible risk as compared to other types of mutual funds and are perfect if you are looking for a short-term investment. If an astute investor is what you want to be, these funds surely deserve a spot in your investment portfolio.

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Created on Sep 29th 2017 01:03. Viewed 648 times.

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