Benefits of Investing in Liquid Funds

Benefits of Investing in a Liquid Fund

If you are planning on reaching your financial goals through smart investments, remember that you need to have a solid financial plan first. Financial planning has been the reason behind the success of several investors. That’s because when you have a defined set of short term and long term goals, you may know exactly what to do with your finances. Also, you get a fair idea about how much money you need to make the initial investment. However, those who are entirely new to investing or financial planning may find it a tad difficult to choose an investment scheme. Not because they won’t know which direction to go, but because the Indian investment market has a plethora of products to choose from.

Every investor is generally advised to determine his / her risk appetite for investing in any type of investment scheme. That’s mainly because every investment scheme out there carries a different risk profile. Just the way it is necessary to consider a scheme that shares a similar investment objective to yours, it is also essential to understand the amount of risk that investment carries. A risk appetite is nothing but an investor’s ability to risk their finances with a particular scheme with the hope of seeking capital appreciation in the long run.

There are few investors who have zero risk appetite. Such individuals prefer settling with conservative schemes offering low interest rates. The only drawback is that such investment vehicles may or may not help an individual achieve his / ultimate financial goal. Hence, it is always better to diversify your investment portfolio depending on your investment objective, investment horizon and risk appetite.

Mutual funds are becoming a popular investment vehicle among retail Indian investors. Mutual funds do not offer fixed returns. However, they may offer capital appreciation for those who invest regularly and have a long term investment horizon.

What are liquid funds?

Mutual funds are further categorized by SEBI (Securities and Exchange Board of India) so that investors have fair understanding about the difference between several mutual fund products and it might help them in making an informed investment decision. Mutual funds have been categorized based on certain unique attributes like investment strategy, asset allocation, risk profile, investment strategy, etc.

Equity, debt, solution oriented, hybrid, ETF, index and gold are some of the major mutual fund categories. Liquid funds come under debt funds. While equity funds invest predominantly in equity and equity related instruments, debt funds invest in fixed income securities.

Liquid funds are those debt funds which majorly invest in debt and debt-related instruments like treasury bills, call money, treasury bills among others. Axis Liquid Fund is an open-ended debt mutual fund that invest in debt and fixed income securities that come with a maturity period of up to 91 days.

Benefits of investing in liquid funds

Investors who are willing to learn more on liquid funds, here are some of the benefits of investing in liquid funds.

Liquid funds are professionally managed funds

Liquid funds are generally owned by AMCs / fund houses who are established and have a reputation. Such reputed firms generally hire fund managers who carry a vast industry experience. It is the duty of the fund manager to manage a fund by buying / selling securities by implementing an investment strategy that aligns with the scheme’s objective. When a fund is managed in such a professional manner, anyone who possesses limited mutual fund investment knowledge should also be able to seek capital appreciation by investing in liquid funds.

Give your investment portfolio liquidity

Liquid funds, as the name suggests, offer liquidity to your investment portfolio. One needn’t remain committed to these funds for any specific tenure. Investors can withdraw liquid fund units according to their own convenience. Most liquid funds do not even have an exit load if you remain invested for just over a week.

Liquid funds may diversify your mutual fund portfolio

 There are some equity schemes that come with a predetermined lock-in period. One cannot redeem such mutual funds if they want to make the most out of their investments. In such a scenario, adding a liquid fund to your folio may prove to be a good option. One can redeem or withdraw their liquid fund units in times of emergency / exigencies. Also, these funds give your portfolio the diversification it deserves.

There are multiple ways to invest in liquid funds

Generally there are two ways to make an investment in liquid funds – you can either make a lumpsum payment or you may start a liquid fund SIP. Lumpsum payment allows investors to receive more mutual fund units in quantum with the investment amount and depending on the liquid fund’s existing NAV. On the other hand, SIP or systematic investment plan is an easy and hassle free way to continue investing in liquid funds. SIP allows investors to invest small amounts at regular intervals as long as they want to.

If you are planning on investing in liquid funds, you may take a look at Axis Liquid Fund. The investment objective of this fund is to provide a high level of liquidity with reasonable capital appreciation in commensuration with low risk through a portfolio of money market and debt securities. However, there can be no assurance that the investment objective of the Scheme will be achieved.

Axis Liquid Fund

An open ended liquid scheme

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.