What is so awesome about liquid funds?

Mutual Fund Classification

Out of many different ways of classifying mutual funds, one way is to classify it by asset class
  1. Equity funds
  2. Debt funds
  3. Hybrid funds
  4. Gold funds
  5. Others (Fund of funds, commodity funds, real estate funds, etc.)

What are liquid funds?

Liquid funds fall into category of debt funds. Liquid schemes or money market schemes are variant of debt schemes which invests in very short term debt securities. These funds can only invests in securities up-to 91 days of maturity. 

If all these is going over your head, in simple terms liquid funds are the funds which are most liquid among all mutual funds. Reason for same being having neither early-withdraw-penalty nor lock-in-period. What is so special about these funds is that these funds have very very low risk. Practically, you cannot lose money in these funds. These funds offer you returns of about 0.02% every single day on your parked money.

Liquid funds vs Savings accounts

You might be thinking what might be safer than my own savings bank account. Let me tell you that liquid funds equally safe if not more than savings account. If bank goes bankrupt or if something like PNB scam happens with bigger scale, you are entitled to get only up-to Rs. 1 lakh per account. This might come as shock to you but it is one of the little known facts about banking system and it is true. Check more details here. Though chances of happening such event is very low, we cannot ignore possibility of such happening in our not-so-transparent banking system.

In addition to being safer than savings accounts, liquid funds offer more returns on your ideal cash. Direct plans of liquid mutual funds offer returns ranging from 6.5% to 8% per annum. And it comes without any lock-in or exit-load unlike FDs. You can withdraw money any time you want. 

Thus liquid funds are amalgamation of best features of all other money parking instruments. You get features of FD & savings account in one. Doesn't it makes liquid funds awesome!! Its good option to park money for short duration until you decide how to invest it properly. It also serves as your emergency fund.

Remember to put your money in direct mutual funds to avoid hidden commission to agents & so called 'free' platforms. Please comment your queries, suggestions or ask any other questions.

Stay tuned...

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