Liq­uid Mu­tual Funds

Are they a bet­ter bet?

Consumer Voice - - Front Page -

13 Prod­ucts Com­pared

"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...

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