What are liquid mutual funds?
Discover the benefits of Liquid Mutual Funds – a safe, low-risk investment with high liquidity and better returns than FDs.
Liquid Mutual Funds for Safe and Short Investment: If you are thinking “What are liquid mutual funds?” then to start with, Liquid Mutual Funds, also known as debt mutual funds, short-term funds, or ongoing types of Mutual Funds, are safe for investment.
In Liquid Mutual Funds, the money is invested in very short-term market instruments like government securities, term deposits, etc. These funds are considered the safest mutual funds, with an average maturity period of equal to or less than 90 days and offering average returns between 6–9%, depending on the fund house.
Liquid Mutual Funds have almost no risk but provide lower returns compared to ELSS, Equity, and Balanced Funds. However, they offer higher returns compared to bank deposits like fixed deposits (FD) and recurring deposits (RD).
Planning to invest but not aware of how to invest in Liquid Mutual Funds? You can invest through third-party applications by opting for a Systematic Investment Plan (SIP) or a Lump Sum investment.
Benefits of Investing in Liquid Mutual Funds:
- Full or partial withdrawal is possible with no exit load in most cases.
- You can invest an amount as low as Rs. 1,000 (lump sum) to start within liquid mutual funds.
- If you need to withdraw money anytime, the amount will be credited within 30 minutes of the redemption request, making them a safe investment.
- Liquid Mutual Funds have zero exit load (except for the first seven days of investment, as per the latest regulations), and you can withdraw money anytime as there is no lock-in period like ELSS or other tax-saving investments.
- You can also check the performance and returns of Liquid Mutual Funds through an online mutual fund calculator before investing.
Disadvantages of Liquid Mutual Funds:
• Although Liquid Mutual Funds are considered risk-free, they provide lower returns compared to other mutual funds.
• While you can withdraw money instantly within 30 minutes, some fund houses allow only 60-80% of the invested amount to be withdrawn instantly. The remaining portion follows the normal withdrawal process, which may take 2-3 working days.
These kinds of mutual funds are ideal for keeping your spare money while earning reasonable returns.
Popular Liquid Mutual Fund Providers:
- HDFC Liquid Mutual Funds
- Reliance Liquid Mutual Funds
- Axis Liquid Mutual Funds
- ICICI Liquid Mutual Funds
- SBI Liquid Mutual Funds
How to Invest in Liquid Mutual Funds:
You can visit the website of a mutual fund provider like HDFC Mutual Fund, ICICI Mutual Fund, or others. Alternatively, you can invest through platforms such as Coin-Zerodha, ET Money, Groww, MyCAMS, Fisdom, and more.
By choosing Liquid Mutual Funds, you can ensure a safe, flexible, and easily accessible investment option while earning better returns compared to traditional bank deposits.
Liquid mutual funds are debt mutual funds that invest in short-term money market and debt instruments with maturity of up to 91 days. They are designed for investors looking to park surplus funds for short periods.
Liquid mutual funds are generally considered relatively low-risk compared with many other mutual fund categories. However, they are not risk-free and carry credit, interest-rate and liquidity risks.
Yes. Investors can generally submit redemption requests on business days, subject to scheme cut-off times and applicable redemption processing rules.
The minimum investment depends on the mutual fund scheme. Many schemes allow relatively small initial investments, but investors should check the scheme information document.
No. Liquid mutual funds provide market-linked returns, which fluctuate depending on the underlying securities and market conditions.
Liquid funds generally follow a graded exit-load structure for redemptions within the first seven calendar days. The applicable rate depends on the holding period and prevailing regulations.
It depends on your financial goals. Fixed deposits generally offer predetermined interest rates, while liquid mutual funds provide market-linked returns and different liquidity and taxation characteristics.
Taxation depends on the fund’s classification, acquisition date and applicable tax provisions. Gains from specified debt mutual funds acquired on or after April 1, 2023, are generally taxed at the investor’s applicable slab rate under Section 50AA, subject to the law.
Yes. Although they generally have lower volatility than longer-duration debt funds, adverse credit or market conditions can result in negative returns.
Liquid funds invest in instruments with maturities of up to 91 days, whereas overnight funds invest in securities with a maturity of one day.
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