} Why are liquid funds ideal for your unused cash?

Why are liquid funds ideal for your unused cash?

11 Jul 2019

Suppose you keep cash that values to Rs 50000 with you in a locker at your home. You have no intention of spending it and it simply lies there. About one year later, it is still lying at the same place, the same amount. There is simply no increase. Now, let's suppose you decide to put it in a savings bank account.

Well, at the year's end, you may get a small amount on it as banks pay about 4% on an average on your saving account balances. If you keep the same money in a current account, you won't get anything and after one year, the amount will remain the same. Thus, it is quite hard sometimes to manage your finances and you may need an additional amount of guidance, to get things going in your favor.

Wealthclock Advisors works with the same aim; to help out people confused about investment and the world of finance. Every one of us needs liquid cash for our everyday needs. It is the easiest form of currency to make payments and there is no charge incurred on it too. However, idle cash is useless cash. It is not earning anything for you and is also, reducing in value in terms of purchasing power over time. So, what to do?

Liquid funds can be a great solution

Liquid funds can easily be converted to cash as per requirement. They are for a shorter period of time and the type of securities they invest in reflects that nature. Individuals, as well as small businesses who deal in plenty of cash, can generate a few returns on their surplus cash if they park the funds in liquid funds.

Now for instance, if a small scale businessman knows that he has some payments that are worth Rs 5 crore coming up after the next three months, and puts it in a current account it will simply lie there without earning anything. Putting the money in long-term instruments will simply block it. A liquid fund in this scenario would be the best investment option for him. As a matter of fact, liquid funds are thought as the less risky one among all mutual funds.

So ideally, you should invest in liquid funds when you have surplus money lying idle and need to deploy it for a short period of time. These funds would be invested in extremely short term debt and money market instruments that are highly rated, thus providing easy liquidity along with returns in line with that prevailing in the market.

What are the benefits of going with liquid funds?

  1. Minimal capital risk - Liquid funds are highly rated and it signifies minimum loss from credit defaults. Such mutual fund investments invest in instruments that have a maturity profile of 91 days or below. The extremely short maturity of the investments helps in minimizing the MTM volatility in your portfolio and thus leads to minimal capital risk.
  2. Return efficiency - Investors start to earn returns from the date of the investment itself. It thus minimizes any return leakage. This is one of the biggest benefits of going for liquid funds. We as one of the top financial advisors, recommend them to most of our clients.
  3. Optimizing cash management - Investors can even invest for as less as a day in order to optimally use their liquid fund for their cash management purposes. These kinds of mutual funds can also be invested online. Thus they make things easier for an investor. To know how to invest in mutual funds online the best and most helpful way, you can always contact us.
  4. High liquidity - Liquid funds offer unmatched liquidity to investors as their money remain invested for such a shorter period of time. So, these funds allow investors to redeem their investments as and when they need. Upon redemption, the proceeds from liquid funds are credited to your account within some days. This makes this form of fund an ideal option for your cash.
  5. Instant redemption - Plenty of liquid funds offer the facility of instant redemption. This signifies that on placing a redemption order online, people will immediately get the proceeds in their bank account. However, market regulator SEBI has capped the instant redemption amount to either 90% of portfolio value or Rs 50000, whichever is lower.

So, should you go for liquid funds or not? Decide on for yourself. You can also visit us for the most helpful mutual fund investing advice.

Conclusion

Liquid funds give you a higher return than the normal savings account, even after considering what impact the expense ratio has. So, liquid funds are much more lucrative than the other option to park your cash. So, make the best decision and enjoy your investment time!

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