Savings in mutual funds has also proven to be a favoured approach of many people who would wish to expand their portfolios. A valuable tool for investors to plan their investment portfolios is the SIP calculator. By determining the amount to be invested periodically, this tool helps investors in estimating the returns that they will get out of the investments. People are usually advised to invest in long term projects however it is very crucial that one also considers ideas on short term investments. One such choice that is available to investors when it comes to liquid investments is liquid funds.
What are liquid funds?
Operating funds and liquid funds are mutual funds that are deployed for shorter periods of time. It buys interest-yielding securities which are short-term in nature with average costing 91 days or less. These securities comprise treasury bills, commercial papers, and certificates of deposit. Because of their short tenure, liquid funds are considered to be among the lowest risk investment products under the mutual fund classifications.
The following are the major attributes or unique selling points of liquidity funds:
• Short Maturity Period: Due to its short maturity period, the securities in which liquid funds invest help reduce the risk associated with changes in interest rates.
• High Liquidity: The term liquid mutual funds, therefore clarified, stands for high liquidity of capital since its owner may need it at short notice.
• Low Risk: These funds come with low risks because they buy securities that have a high credit rating and a short duration.
• Stable Returns: They are slightly lower than those offered by equity funds, but the returns are constant and can easily be appreciated.
Perks of Investing in Liquid Funds
- Easy Access to Funds
Liquid funds help in easy accessibility to your money. The invested amount can be redeemed, and the funds can be in your account within one working day. Thus, liquid funds are ideal for use for any sort of emergency fund or any other similar short-term financial objectives.
- More returns than ordinary checking and savings accounts
Money market funds, as the name suggests, are generally much better returns than just a savings account. Despite the exceptionality of the returns, they are higher because of the characteristics of the underpinning investments. This makes liquid funds a more suitable place to park cash that you do not need to use for a while.
- Small entry and exit barriers
In general, most forms of liquid funds do not come with an entry or exit load; that is, investors can get into the fund or leave the fund without spending extra money. This feature further improves the marketability and manoeuvre ability of these funds.
- Safety of Principal
Because liquid funds invest in high-quality securities, namely debt products, the possibility of getting a call that your principle is wiped out is very close to impossible. This safety aspect is quite attractive, especially for the conservative investor who would want to maximize the capital.
Conclusion
Liquid funds should be a perfect fit for short-term investments as these financial instruments have relatively high liquidity, low risk, and steady income. Banks offer a secure place to deposit unused cash and could be superior to savings accounts. To this end, the various tools, such as the SIP calculator, enable you to plan for your investments effectively and, in the process, achieve your desires in the best manner possible. When you are in a hurry to gain some cash or you want better returns on your surplus amount, then liquid funds are the best investment tool to rely on.
