Mutual Funds are investment vehicles that consist of an allocation collected from several investors to invest in stocks, bonds and such other securities. In the debt category of mutual funds, you would find liquid funds. Best Financial Adviser Kuber Mindz Moneymindz says that liquid funds are preferred by investors as they invest in short term market instruments like treasury bills, government securities and call money, thus earning higher returns than savings account.
By any chance if you find yourself with some surplus money, do not hesitate to use it for investment purpose. Invest the lump sum in liquid funds. A savings account isn’t enough and won’t offer you the returns you get if you invest in liquid mutual funds. Remember that beating inflation is your financial goal.
When to invest in liquid funds?
An investor has to make use of the opportunity of using liquid funds to park his/her money for short intervals ranging from 24 hours to 90 days. If you have a short term goal like planning a vacation, it is ideal to park your funds in a liquid fund.
Multiple equity investors make use of liquid funds to stagger their investments into equity mutual funds by utilizing the Systematic Transfer Plan (STP). This is done with the belief that this process brings forth higher returns eventually leading to them beating volatility over a period of time.
Speed of the redemption of such funds
As soon as you provide the redemption request before the cut-off time on a working day, the money can be expected to reach your bank account by the next working day. Liquid funds don’t have any entry and exit loads.
Returns one can expect from liquid funds
As per Value Research Data, the category of liquid fund has provided a return of 6.84% in the last one year. This is higher than returns of savings accounts (3.5-6%).
Level of risk
Financial planners and financial advisers say that liquid funds carry minimal risk combined with lower volatility compared to other categories of mutual funds. This is because they invest in high credit rating and their NAV (Net Asset Value) changes to the extent of interest income accrued including on weekends.
Holding a liquid fund for more than 3 years makes you eligible for long term capital gains tax with indexation. If you sell it before 3 years you have to pay tax as per your tax slab. You can select dividend option so that the fund will be contingent on dividend-distribution tax of 28.84%.
For more information visit www.moneymindz.com or give a missed call to 022-62116588.