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Benefits Of Liquid Mutual Funds

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By Author: Swarali Chavan
Total Articles: 36
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Liquid funds are a debt mutual fund scheme. An investor can use it if they have excess cash and think they might need the cash in a few days or weeks or months. If an investor wishes to invest a large sum in an equity fund, but want to stagger the investments over a period, put the money in a liquid fund and enroll for a systematic transfer plan (STP) wherein you will invest a fixed sum from the liquid fund to an equity fund each month. Liquid funds can become one of the most beneficial investment options. Liquid funds are a type of mutual fund/debt funds whose redemption period will be less than 24 hours. After an investor learns about what are gilt funds, they can invest in government securities. These funds make investments mainly in the money market instruments like commercial papers, certificate of deposits, term deposits etc. The lock-in period of liquid funds can go up to maximum of 3 days and the encashment of the proceeds will take place within 24 hours. Some liquid funds may have a lock-in period of up to a week or even a month.

One of the characteristic features of liquid mutual funds is that the underlying assets of the fund have a lower maturity period which can be helpful for the fund manager when the redemption demands have to be met. Liquid funds generally take a single day for processing the encashment of funds. Because of the advancement in technology, an investor can get all of their money in just a few minutes. There is a limit on the amount which can be taken out which is set at 90% of the portfolio’s value or Rs. 50,000 per day, or whichever is less. An investor can go for different plans like monthly dividend plans, weekly dividend plans and growth plans offer liquid funds.

Benefits of liquid funds:

1. No lock-in period:
They are known as liquid funds as they do not have a lock-in period and give the investor a quick access to the cash by redemption. There is no entry or exit load as well.

2. Quick withdrawals:
Liquid fund withdrawals take place in a short time, generally within 24 hours. The minimum investment for liquid funds will vary with different schemes.

3. Low interest rate risk:
Since it is known that liquid mutual funds mainly invest in fixed income securities which have a short maturity period, they have one of the lowest interest rate risk as compared to other debt funds. They also feature a low annual fee between the range of 0.30% to 0.70%.

4. Tax benefits:
Liquid funds provide valuable tax benefits.

5. Comparatively good returns:
Liquid funds offer an average return of about 80% per annum.

Author Bio :- Swarali Chavan is a finance professor who loves study about market investment instruments. She has written on liquid funds. Through this article, she has provided detailed information on all you need to know about liquid funds.

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