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A liquid mutual fund is a debt fund meant for short-term investment. As the name suggests, it is characterised by high liquidity.
Liquid mutual funds have high liquidity. (Representative Image)
A liquid mutual fund is a debt fund that invests in short-term debt instruments. Typically, the investment is made in instruments such as treasury bills (T-bills), commercial papers, certificates of deposit and collateralised lending and borrowing obligations (CBLO). The maturity period usually lasts up to 91 days.
Features of Liquid Mutual Funds
No Entry And Exit Load: Typically, there is no entry or exit load in a liquid mutual fund. This underlines its highly liquid personality.
Minimises Risk: As investments in liquid mutual funds are meant for a short duration, they face minimal risk from interest rate fluctuations.
Flexibility For Minimum Investment Amount: The minimum investment amount varies across schemes, providing flexibility to investors to invest according to their budget.
How Does A Liquid Mutual Fund Work?
A liquid mutual fund offers safety and liquidity to an investor. Accordingly, the fund manager invests in instruments that have a good credit rating and minimal chances of default. Protection of capital is more important than generating returns.
As it is a short-term investment option, it is less vulnerable to interest rate fluctuations.
Who Should Invest In Liquid Mutual Funds?
Short-Term Investors: Investors who want to invest for a short duration with minimum risk can invest in liquid mutual funds.
Individuals With Surplus Cash: An individual with surplus cash which is not required immediately can generate good returns by investing in liquid mutual funds. Liquid funds usually generate better returns than a savings bank deposit.
Those Who Want To Build An Emergency Fund: Investors often put their money in liquid funds to build an emergency corpus. As these are highly liquid instruments, it is easy to access one’s money in the hour of need.
How To Invest In A Liquid Mutual Fund?
To invest in a liquid fund, you can visit the website of the fund house offering the scheme you want to invest in. Once you are on the website, you can follow the necessary steps to invest. You can also use third-party investment apps to invest in liquid mutual funds.
Redemption Time For Liquid Mutual Funds
The redemption requests for liquid mutual funds are settled in T+1 day. Here ‘T’ refers to the day of the transaction. Some fund houses may also offer instant redemption via their mobile apps.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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Delhi, India, India
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