Liquid funds are those debt funds which invest in various financial instruments such as commercial papers, treasury bills, government deposits and other securities having maturity at most 91 days. These funds contain high level of liquidity. Liquid funds are considered to be one of the best choices for excess income investment.
ADVANTAGES OF LIQUID FUND INVESTMENT
- It ensures high level of liquidity and security as the investment is made in quality credit instruments like Treasury bills, Certificate of Deposit and Commercial paper.
- When exposed to the variations in market rates, the Net Asset Value of liquid funds will not undergo much variations. This is due to the average maturity of 91 days.
- Liquid funds are considered to be risk-less comparing to similar funds.
- Liquid funds are considered to be finer than savings bank deposits. This is because a depositor can have higher returns. These funds offer about 6.5%-8.5% return on average.
- The investors can withdraw their funds whenever they want. therefore, it also acts as an emergency fund.
WHY SHOULD YOU INVEST IN LIQUID FUNDS?
These funds are suitable for those who are seeking choices to invest their excess cash or idle money as these deliver high level of liquidity and higher returns.
Liquid funds are acceptable for accomplishing short-range financial goals. Some funds create about 7%-9% returns while savings bank deposits offer 2.5%-4%. Therefore, these funds are recommended over savings bank deposits. The portfolio allocation of liquid funds is least-risky, less-volatile or default linked.
EXAMPLES OF HIGHLY PERFORMING LIQUID FUNDS IN INDIA
- TATA LIQUID FUND
- ADITYA BIRLA SUN LIFE MONEY MANAGER
- MAHINDRA LIQUID FUND
- LIC MF LIQUID FUND
- IDBI LIQUID FUND
- AXIS LIQUID FUND
- KOTAK MONEY MARKET GROWTH