{"id":11680,"date":"2020-09-14T13:16:11","date_gmt":"2020-09-14T13:16:11","guid":{"rendered":"\/blog\/?p=11680"},"modified":"2024-12-27T13:11:51","modified_gmt":"2024-12-27T13:11:51","slug":"what-are-the-benefits-of-investing-in-liquid-funds","status":"publish","type":"post","link":"https:\/\/www.tatacapitalmoneyfy.com\/blog\/investment-guide\/what-are-the-benefits-of-investing-in-liquid-funds\/","title":{"rendered":"What are the benefits of investing in Liquid Funds?"},"content":{"rendered":"\n

Anybody familiar with the world of mutual funds will have\ncome across the phrase\nliquid funds. A liquid mutual fund is an open-ended scheme that invests\nin money market and debt instruments like governmental securities and bonds for\na short period of time and matures after 91 days exactly. The goal of investing\nin a liquid fund is to mitigate the risk associated with interest rate\nvolatility. These are normally lump sum investments, but one can invest through SIPs in the liquid funds\nof their choosing as well. <\/p>\n\n\n\n

One gets high liquidity from their liquid fund along with stability\nin income. Here are some of the benefits one gets from investing in a liquid\nmutual fund. <\/p>\n\n\n\n

Low-Risk\nInvestments<\/strong><\/h2>\n\n\n\n

In general, liquid mutual funds<\/a> are classed as a low-risk product. This is because they are highly liquid in nature and there are barely any fluctuations in their interest rate due to their short investment tenure. With lower fluctuations, one can be somewhat assured of their gains from the fund right from the beginning of their investment. Even the returns on investment with liquid funds fluctuate very little, as they invest primarily in debt instruments such as bonds. Hence, these factors make them a reasonably low-risk investment. <\/p>\n\n\n\n

Any credit risk, which is otherwise known as\nthe risk of default, is also reduced in liquid funds. The reason for this is that liquid funds have a short\nmaturity period that typically lasts just 91 days. Hence, when one carefully\nevaluates the credit fundamentals of the liquid fund, they further mitigate\nthis credit risk. By evaluating the fundamentals such as quality of management,\nparentage, sector, and ratings, one significantly lowers their risk. <\/p>\n\n\n\n

Additional Read: <\/strong>Which Investment Option Is Best For The Risk Averse Investor?<\/a><\/p>\n\n\n\n

Convenient\n<\/strong><\/h2>\n\n\n\n

For the simple reason that liquid funds experience\nlow volatility and mature quickly, they make great short term investment options. A\nliquid mutual fund is incredibly convenient as it is perfect for meeting\ncontingencies or parking any surplus investment gains. Different mutual funds have certain restrictions on their\nscheme policy documents, so be sure to carefully read through the fine print\nbefore investing. However, the typical liquid fund matures after 91 days. You\ncan choose to invest through SIPs\nor as a lump sum investment\nin the fund of your choice. <\/p>\n\n\n\n

Easy\nAccess to Debt Market<\/strong><\/h2>\n\n\n\n

With a liquid mutual fund, you get the low\nrisk of debt instruments at attractive interest rates of debt markets. Most liquid funds do not\nrequire large-scale investments.\nYou can invest an amount as little as \u20b95000 and access the debt instruments of\nyour choosing. Hence,\nliquid funds give you the potential to earn from wholesale debt as these\ninstruments offer a more attractive rate of interest than the average savings\ninstruments. <\/p>\n\n\n\n

\"All<\/figure>\n\n\n\n

Additional Read: <\/strong>Advantages of Having Debt Mutual Funds in Your Portfolio<\/a><\/p>\n\n\n\n

Flexibility<\/strong><\/h2>\n\n\n\n

With fixed instruments, you do not have the\noption to alter your payouts based on your needs. This is not an issue with liquid funds. You get\nflexibility in how you want to invest, grow, and receive dividend payouts. For\ninstance, you can opt to receive your dividend payout every week or every\nmonth, depending on your income needs. This fund serves as an income replacer.\nYou also get the option to move your holdings to an equity fund as and when you\nsee fit. This flexibility mitigates any risk of loss. Best of all, your funds\nare always accessible to you, as there is no lock-in period with liquid funds. For the\nmost hassle-free experience, you can use the Instant Redemption feature of  Moneyfy app by Tata Capital to invest your\nideal money into liquid\nfunds.<\/p>\n\n\n\n

Earnings\nand Taxation<\/strong><\/h2>\n\n\n\n

Liquid\nfunds help an investor earn in two ways<\/p>\n\n\n\n