With equity mutual fund schemes performing really low people are shifting towards debt schemes to secure their investments. These debt schemes are way less risky as they only invest in debt instruments which are highly unlikely to fail. Today we are going to discuss a category of debt funds which is gaining huge popularity among investors and that category is Liquid Funds.
What are They?
Liquid funds are debt schemes which invest in debt and money market instruments and offer high liquidity to investors. These schemes invest in instruments which have maturity ranging from 0 to 91 days. These are the perfect option for short term as well as long-term investments as the risk associated is really low. The best thing about these funds is that you can park your money even for a single day and can redeem the investments the next day without even paying any exit load charges. These schemes have no lock-in period and no exit load and entry load charges. Liquid mutual fund schemes provide average annual returns of 7% and the chances of these funds underperforming are really low.
Why Should You Invest in Them?
Liquid funds are being used as an alternative for savings account these days because of the low risk involved and 7% average returns they provide, which is just double of what savings account offer. The time that is required to redeem your investment is 1 day but these days some of the mutual fund houses are providing an option for instant redemption, with the help of which you can redeem your investments in just a matter of minutes.
Also as we discussed above that the scheme invests in debt instruments with a maturity of 0 to 91 days. These instruments mainly comprise of treasury bills, commercial papers, fixed deposits and certificate of deposits. These instruments provide a consistency to the schemes as it is highly unlikely for these instruments to fail.
Risk Involved
The risk involved with these schemes is very minimal, but still, there is some risk. Let's say the liquid fund you choose, invest in a certificate of deposit which have a maturity of 91 days. Now, what if the company that the certificate of deposit belongs fails to pay up after the end of 91 days. At that time the rating and the price of that instrument will drop leading to the drop in NAV of your scheme.To prevent such kind of problems it is recommended to do a proper research on the schemes before making an investment and if possible consult your financial adviser before making the final decision.
Who can Invest?
This scheme is a great option for people who have a lot of free cash in their savings account and are not using it for anything else. Also, it is a great option for investors who have a very low-risk appetite. People who are new to the mutual fund market can also invest in these schemes.
Now you know that what liquid funds are and what are the benefits of investing in this category. For investing in the top performing funds from this category, you can visit MySIPonline.
