What is a liquid fund, know whether investing in it is beneficial or not

Liquid funds are a category of debt funds that invest in debt and money market instruments such as commercial paper, call money, government security, treasury bills, etc. It has a maturity period of up to 91 days. The biggest advantage of investing in liquid funds is liquidity. Liquidity means how quickly a property can be sold or bought and converted into cash.

Liquid funds are riskless but is it right?

Since liquid funds invest in debt instruments that offer a fixed rate of interest, the returns from the investment are fixed in it. On maturity of securities, the investor gets the principal amount with fixed interest. Due to the short-term maturity period, liquid funds are more attractive. There is no lock-in period for investment in liquid funds. There is no exit fee for withdrawal of invested capital after 7 days of investment. But liquid funds are no longer as attractive at this time. Recently, the maximum withdrawal from liquid funds is seen in the mutual fund category. In January, investors pulled out about Rs 45,000 crore from liquid funds. In fact, due to excess liquidity in the market, the returns in liquid funds are decreasing and investors are not investing in it.

It may be your liquid fund strategy

A liquid fund is good for those investors who want to keep their money somewhere for short period. Small investors have been investing in these low-risk schemes to create emergency funds. For the present, investors should expect lower returns from liquid funds. However, this does not mean that liquid funds are taken out of your portfolio. Investors who want to keep their surplus money anywhere from fifteen days to three months can invest in liquid funds.

An overnight fund is a good product to keep your surplus money for a period of fifteen days. Investors who are carrying an investment target of 45 days or more, can invest in ultra short term funds for their needs. Those wishing to invest in the short-term can choose short-term products, which have low volatility and it is possible to estimate returns.