Liquid Mutual Funds
Are they a better bet?
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"Mutualfundswerecreatedtomakeinvestingeasy,soconsumerswouldn'thavetobeburdened with picking individual stocks." ~ Scott Cook
Once upon a time, financial investing was simple and safe but not profiting. A savings bank account with a mere four per cent interest rate used to be the only investment option with consumers. Much has changed over the years – today there are multiple investment options. Some schemes with a little risk involved can even double your invested monies in less than five years; then there are schemes that offer a consistent income after a one-time investment. At this point, when fixed-deposit interest rates are sliding and individuals’ incomes and investment capabilities are increasing, hundreds of financial companies are launching various schemes and mutual funds with dozens of investment options. Liquid investment funds are one of those popular funds that have been growing steadily and attracting almost everyone from salaried employees to entrepreneurs and even corporate groups. What follows are a few quick facts about liquid mutual funds for you to understand them better.
Subas Tiwari & Gopal Ravi Kumar
Why ‘liquid’? In financial terms, ‘liquid’ is basically associated with an element that can be utilised as and when needed. Hence, a liquid fund means that the units of these funds can be sold immediately and the invested amount redeemed quickly. The fund falls in the category of debt mutual funds that collect investments from several investors like you, and invest a major sum in bonds of reputed companies and government.
Where Are They Invested?
The liquid funds are invested in short-term debt
instruments with maturities of less than one year. Investments are mostly in money-market instruments, short-term corporate deposits, and treasury. The maturity of instruments held is between 3 months and 6 months.
How Are the Returns Like?
The returns from liquid funds do not vary much as they invest in similar underlying securities. In the past, some liquid funds have offered higher returns than bank fixed deposits, which levy a penalty on premature withdrawal.
However, investors must note that past returns record should not be the only criteria for consideration in liquid fund investment. Factors like size of the fund, credit quality of underlying securities, and track record of the fund house should also be kept in mind.