Liquid Funds : Making short-term investment equivalent to handling cash

Bank deposit is the first word that we blurt out when anybody mentions about short-term investment methodology. But, now it is the time to give it a thought. Are bank deposits the only option that is available under the short-term investment strategy? There is much more to short term investing rather than depositing your money in the saving account and earning a mere interest of 3-4%. The only growth that the deposited money makes is through the interest that bank provides on the amount invested. It has a no doubt the benefit of withdrawing the cash in times of exigency. But, it is also true that the idle lying money provokes us to spend resulting in the reduction of liquidity.

What are liquid funds?

There is another side of the coin. Now, the investors have an option of investing their cash surplus for short-term also. The scheme called liquid funds has been launched by the financial experts to provide more returns than the bank deposits and extend identical functionalities. The liquid funds are a type of mutual funds which are as good as cash in hand. The growth graph of the liquid funds is constantly trending upwards even if the market shows downfall. It is the only mutual fund of its kind which is unaffected by the market fluctuations and at the same time provides flexibility of anytime withdrawal. Along with the liquid nature of the scheme the investor is free to withdraw the required amount and to leave the remaining amount to avail the benefits stated in the scheme. For example, if you have invested INR 40,000 in the liquid fund. And due to some urgency you require to withdraw INR 10,000. Then, you have the freedom to do so. You can withdraw the required amount and leave the amount after withdrawal (INR 30,000), for growing. Unlike, other mutual fund schemes it is not compulsory to withdraw the entire amount in the liquid funds. The liquid fund provides a growth rate of around 9% which is quite higher as compared to bank deposits.

Where do liquid funds invest?

The liquid funds no doubt provide a better option for the short-term growth perspective. But, it is equally important to know that how the money under the scheme is invested. The money invested in the liquid funds is put in the commercial papers, certificate of deposits, treasury bills, etc. the commercial paper is a promissory note which is issued by the company committing to pay the face value to the holder on the maturity date. In the same way a certificate of deposit is also a promissory note issued by any bank and makes the holder eligible for availing interest.

Redemption of liquid fund

Redeeming a liquid fund is equally simple. The liquid funds carry no exit load even if you withdraw the money before the maturity period. The clients are required to submit the request for redemption till 2 p.m. On the working days, whether it is online or physical request. The reason behind the constraint is that no request is entertained after 3 p.m. Thus, if the request gets registered by 2 p.m., the money will be transferred to your account by the next day. Therefore, within a span of two days your money will be in your hand. The simple and quick process of investing and redemption has attracted a lot of investors to invest in the liquid funds.

Sub-categories of liquid funds

The liquid funds are further classified into more sections namely monthly dividend plan and daily dividend plan. The monthly dividend plan is a scheme of the liquid fund which distributes dividend to the holder on monthly basis. In the same way the daily plan gives dividend on daily basis to the investors. Providing such options in a short-term investment process has become the magnetizing element for the scheme.


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