Understanding Liquid Funds

Investing in funds has the benefits of diversification and the possibility of generating high returns. The funds are managed by professionals on your behalf and they invest in different securities. However, understanding the types and features of the fund will help in making an investment decision. One such type, which you should have sound knowledge about, is liquid funds.

What are liquid funds?

A liquid fund is a debt mutual fund that invests into short-term instruments like government securities and treasury bills. These market instruments have minimal risk and a short investment period.

They usually have a maturity of 91 days or lower. The risk associated with the investment and the investment period both are low.

Why should you invest?

The biggest benefit of investing in a liquid fund is the security of your money and high liquidity. The money will be safe since it is invested in market instruments that carry minimal risk.

Additionally, it has a very short investment period, which allows you to grow your money in a short duration. If you invest the money in a fixed deposit or ELSS funds, you have to remain invested for a fixed term while in the case of liquid funds, the investment period and risk are minimal.

It is a bad idea to let your money remain idle in the savings account. If you are not in urgent need of money, you might want to invest in a fund and grow your wealth.

The returns generated in the liquid fund are much higher than the interest offered in a savings account.

Who should invest?

The fund is perfect for conservative investors. If you have a very low-risk appetite, you can invest in liquid funds.

In addition, if you have excess money on hand currently and are looking to invest it for a short span, choose these funds. If your money is lying idle in the bank, invest them into the funds and let them grow with time.

The fund is perfect for those who want stable returns at low risk. You want your money to remain secure even if it generates low returns. It is not for investors who want high growth and returns in a short span.

What are the tax implications?

Before you make any investment decision, it is important to understand the tax implication on the same. For any gains made before one year from the investment, you will be taxed as per the regular income tax slab.

In case of long-term capital gains, that is, the redemption of the funds after a period of three years, the gain will be taxed at the rate of 11.33% inclusive of cess and surcharge. Alternatively, a rate of 22.66% will be charged without the benefit of indexation.

The amount, which is lower of the two aforementioned tax rates, would be tax payable.

Most of us park our money in the savings account and let it sit idle. It is not a good idea to stop the money from growing. With investment options like liquid funds, it is best to invest your money for a short period, and see it grow with low risk.

What are the best liquid funds?

We have listed down few of the best liquid funds that you can think about investing. For more details, set-up your account and talk to our financial advisor today:

• Axis Liquid Fund Institutional Plan Growth
• DHFL Pramerica Insta Cash Fund Growth
• Aditya Birla Sun Life Liquid Fund Growth
• Reliance Liquid Fund Growth
• Canara Robeco Liquid Growth

Common mutual funds investment mistakes

To ensure the investments you make help you toward a financially secure future, you must avoid certain investment mistakes that a lot of newcomers end up making. Mistakes such as:

Investing in Lump Sum Money:

Investing a huge chunk of your money in one go might seem like a good idea for some investors but it is not a good method. Your ability to manage market risks and to carry out asset allocation is deeply reduced if you make a lump sum investments. Having a systematic investment plan helps you invest your money periodically and optimise your returns based on the financial goals you want to achieve.

Start Panicking:

Many investors start panicking when the markets go down and take an impulsive decision to sell off their portfolio. Instead take a step back, read about what is happening in the market, talk to other investor friends, advisors or colleagues. Don’t take any steps until you have all the necessary information and have done enough research to form an informed decision.

To read the entire list of common mistakes that you should avoid, check out 10 mistakes to avoid while investing in mutual funds.

Why FundsInn?

FundsInn is an online investment platform. Individuals can manage and make investments in Mutual Funds, Corporate Fixed Deposits, Bonds through our platform at Zero processing fee.

FundsInn is AMFI certified company that offers various services including Financial planning and Assets management. We recommend a personalised investment portfolio keeping your financial goals and investments in mind.

Our financial advisors understand your current financial status and suggest a financial plan that suits your needs. You can initiate different types of transactions including Lump sum investment, SIPs (Systematic Investment Plans), in various schemes available on our portal.

If you are looking for guidance then get in touch with our financial advisor and get started today.