‘Are mutual funds meant only for long term equity investing? Or Where should I invest my money for secure and steady returns?’
These are a few questions that many investors seek answers to. A quick search online for the right fund to invest can make things a bit worse. The presence of numerous categories and funds to choose from can be overwhelming for new investors or sometimes even the seasoned ones. So where should you invest for the short haul?
Have you heard about Investing in Liquid Funds? What are they?
Liquid funds are open-ended mutual fund schemes that invest in debt market instruments with maturities up to 90 days. Liquid funds are usually associated with lower risks and thus deliver relatively safer returns. Liquid funds primarily invest in instruments such as Treasury bills, commercial papers, government securities and so on.
Liquid funds India has a slightly different NAV calculation structure when compared with other mutual funds. The NAV or the net asset value of liquid funds is calculated for 365 days at the same time. Unlike other debt funds where the NAV is calculated at the end of a business day. There is no lock-in period in liquid funds.
As is the case with any other mutual funds, you can place a request to redeem NAVs of liquid funds at any point in time. The order to redeem the units will be placed by 2 pm on the current day or the next business day if you miss the time slot. In such cases, the NAV for the previous business day would be considered.
Why you should invest in liquid funds?
Liquid funds have one of the lowest risks associated as compared to other mutual fund schemes. This makes them ideal for investors who are not willing to take a lot of risks on their investments. And unlike some other funds, liquid funds do not have any exit loads.
Even if you invest in the best liquid funds, you may not receive returns like the equity mutual funds. Instead, you will receive a steady stream of income without taking many risks. Liquid funds are ideal for individuals who have some spare cash and are looking for a way to park it.
Redemption of mutual fund NAVs usually takes 24 hours to process. If you were to place an order to redeem your units, the earliest it would be done is the next business day.
The best performing liquid funds can offer returns anywhere between 6% - 8%, which is much higher than the standard interest rates that banks offer. The low-risk factor along with comparatively handsome returns is what makes liquid funds an interesting proposition.
Liquid funds in India
As an investor, you must carry out your due diligence before investing in any mutual fund for that matter. The following are some of the parameters that you must consider before investing in liquid funds.
- Fund Objectives
Most of the instruments that are a part of liquid funds mature within 60 to 90 days. This ensures that there isn’t much fluctuation when it comes to the NAVs. This also prevents major variations in the NAVs. If a rating agency down rates a company, the NAV of even the best liquid funds can take a beating. Though they are not risk-averse, when compared to other mutual funds, you can rely on their stability.
- Potential returns
Knowing the kind of returns that you can expect will help you decide with more conviction whether you want to invest in liquid funds India or not. When you consider historic data, liquid funds are known to return between 6% - 8% annually. Now if you look at the interest rates on offer by banks (on an average 4% annually) the liquid funds perform quite well. Though one cannot guarantee returns in mutual funds, in most cases you will be able to redeem your units in the green.
How should one evaluate liquid funds?
It should not come as a surprise that you would need to do some background work to get your hands on the best performing liquid funds. The following parameters should help you zero down on the top performing liquid funds.
- Fund expense ratio
Mutual funds also require administrative work to be completed in the background. Asset management companies usually charge them via expense ratios. In other words, it shows the operating efficiency of a fund. A lower expense ratio ensures that you will walk away with a higher return percentage.
- Returns of the fund
It must be noted that the past performance of even the top performing liquid funds is in no way an indication of the future returns. However, looking into history will help you better assess a fund.
Top 8 Liquid funds for 2019
The following is a list of the best liquid funds to invest in 2019. Here is a glimpse of the funds and their details briefly.
The above list contains some of the best liquid funds 2019 has on offer. You can consider the above funds and take a final call on which fund suits your investment profile.
There are a few strong reasons why liquid funds have garnered so much interest in recent years and a place in the portfolio of various investors. Their shorter maturity dates ensure that fund managers are not in a constant tussle to manage redemptions.
If you are considering parking your money for a short period, then just take a pick from the best liquid funds. It would offer you stable returns while allowing you to forget about the fund, until any short-term goal demands your attention. The low risk and steady returns make liquid funds, an ideal investment for short to mid-term goals.
Investors who have been in the habit of investing in fixed deposits and savings accounts will find the best liquid funds an interesting option to invest in. If you were to receive any dividends on these funds, you need not worry about taxes, since they are tax-free in your hands.
To sum up, if you are someone who wants to make their money work hard, then you should definitely not let go of the Liquid Fund option. Our team at IndiaNivesh constantly encourages customers to take advantage of this instrument. Our expert yet friendly team can hand-hold you to getting started and suggest you the best liquid funds to consider.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.