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Ask any seasoned investor, and they will tell you that mutual fund investments are a long-term game. But what about investors who desire quick returns or want to park their investments for only a few months? Well, they can consider investing in liquid funds.<\/p>\n\n\n\n
In simple terms, liquid funds<\/a> are debt mutual fund schemes wherein investors can invest money in fixed-income instruments that mature within 91 days. Investors with ample surplus funds invest in these instruments to park their funds for a few weeks and earn returns.<\/p>\n\n\n\n Besides, investing in liquid mutual funds is fairly easy. The NAV is calculated for 365 days, and the withdrawals get processed within 24 hours.<\/p>\n\n\n\n These funds also face the lowest interest risk, making them an excellent investment choice for beginner investors or those with a low-risk tolerance.<\/p>\n\n\n\n Now that we\u2019re clear on what are liquid funds, let\u2019s understand how they work.<\/p>\n\n\n\n 1. Reduced Risk<\/strong><\/p>\n\n\n\n Liquid funds primarily invest in short-term debt instruments, which have lower market volatility compared to equity or long-term debt investments. These funds maintain stable value even during market fluctuations, making them a safer option for risk-averse investors.<\/p>\n\n\n\n 2. Flexible Tenure<\/strong><\/p>\n\n\n\n Liquid funds offer a flexible tenure where investors can stay invested as long as they want to and exit easily. Although a small exit load applies to redemption within seven days, the structure is still flexible, allowing investors to get handsome market-linked returns.<\/p>\n\n\n\n 3. Cost-Effective<\/strong><\/p>\n\n\n\n Liquid funds usually have low expense ratios, making them a cost-efficient investment option. This is because these funds require less active management than other debt funds<\/a>.<\/p>\n\n\n\nAdvantages of liquid funds<\/strong><\/h2>\n\n\n\n