Importance of liquid funds in your investment portfolio

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Have you got a huge incentive this month? Are you confused about how should you spend it? What if you can invest and get good returns until you decide on spending? While putting the money in your bank’s savings account might be your first option, investing in a liquid fund can get you higher returns. Liquid funds have been a popular option among investors who want to have more flexibility while enjoying the perks of mutual fund investment. Investing in liquid funds proves to be an essential step in your financial planning. Let’s see how liquid funds help you strengthen your portfolio and make life easier.

What are liquid mutual funds?

Liquid funds invest in short-term debt mutual fund instruments that offer high liquidity. Liquid funds help you achieve your goal of getting reasonable returns in the short-term while keeping the investment risk low. Moreover, as the name suggests, this means of investment provides the freedom of withdrawal.

  1. Returns

The major benefit of investing in liquid mutual funds is the higher returns you get than a savings account. And the favorable tax treatments on these returns help you reasonable capital in a short time. The overall return created by liquid funds is 6-8% which is higher than 4% of a savings account.

  1. Efficient salary management

Whether you get your salary on the 1st or 5th of every month, I’m sure you don’t spend all your salary in a single day. So, you can park your rent amount next 5-10 days in liquid funds until the due date. This small habit will create impressive returns over the years.

  1. Business purpose transactions

Liquid funds are beneficial for people who run a business. Let’s say you pay Rs. 10 lakhs as a total salary to your employees. You can park the salary amount in liquid funds until the payment date.Even you invest this money at 7% for 10 days; you could get considerable returns over the years.

  1. Grow your emergency fund

We all try to save more to create a considerable emergency fund. However, parking a piece of your emergency fund into liquid mutual funds will help it grow at ease. Most of the liquid funds don’t come with an exit load.So you can withdraw your money anytime you want. You will have your returns credited to your account in less than 24 hours whether you opt for online or offline redemption.

If you are sure about the investment risk and returns safety you can invest the complete emergency fund into liquid funds. This will help you grow your emergency fund considerably until you have to withdraw it.

Apart from the short-term investment, easier and faster withdrawal facility, high returns, liquid funds have now become popular as the most efficient cash handling. Moreover, investing in liquid funds is a good way to get good returns on your unused money. After all what good is the money that doesn’t come in handy when you need the most?

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