The term “liquid funds” is common in the world of mutual funds, so it’s likely that you’ve heard it before. A liquid mutual fund is nothing, just an open-ended plan that invests in financial markets and debt instruments for a limited length of time, such as government securities, including bonds. The fund expires after exactly 91 days from the date it was established. Investment in a liquid fund with the intention of mitigating the risk of loss due to fluctuating interest rates is the primary objective of this strategy. Typically, these are investments made with a single quantity of money; however, systematic investment plans (SIPs) can also be used to make investments in liquid funds. To know more about liquid funds, click on the link below: https://www.glideinvest.com/knowledge-center/liquid-mutual-funds-meaning-returns-benefits
1. Excellent liquidity
The fact that these types of investments are so quickly convertible into cash at a moment’s notice is one of the reasons why they are referred to as “liquid funds.” They have become more liquid as a result of recent reforms that were suggested by the market regulator SEBI.
To guarantee that there is always enough liquidity, SEBI has mandated that these funds keep at least 20 percent of their assets in liquid forms, such as cash or its equivalent, such as government bills. This is done to guarantee that there are sufficient liquid assets available at all times. When the number of redemptions is significant, it might be challenging for fund managers. Nevertheless, this shift bodes positively both for those who invest in funds and those who manage such funds.
2. The market for fixed income
Retail investors now have a chance to join the Indian fixed income market thanks to liquid funds.
This market used to be controlled by financial institutions such as banks, insurance firms, pension funds, and so on. Participation in the market for fixed income was not open to ordinary investors since it was not possible. However, liquid funds have made it easier for individual investors to engage in the fixed income marketplace by combining the money from lakhs of participants into a single investment.
3. Simple Access to the Bond Market
A liquid mutual fund provides investors with the minimal risk of debt instruments in addition to the competitive interest rates of the market. The vast majority of liquid fund vehicles do not call for investments of a significant volume. You can have access to the debt securities of your choice with an investment of as low as 5000 Japanese yen. Therefore, having liquid money gives you the possibility to gain from wholesale debt because these products provide a more appealing rate of return than the average rate of interest offered by savings vehicles.
4. Reduced Expense to Income Ratios
Professional management is employed for liquid assets. In order to cover the costs of managing the portfolio, financial institutions impose management fees, which are included in the expense ratio of the fund. There is a negative relationship between the expense ratio and the returns on the portfolio. A relatively low expense ratio is typically associated with liquid funds. Because of this, they provide better returns.
5. Skillfully directed by professionals
The asset management companies (AMCs) and fund houses that own liquid funds are often well-established businesses with a solid track record. Fund managers are typically sought after by reputable companies like these because of their extensive prior work experience in the field. It is the responsibility of the financial adviser to manage a fund by purchasing and selling assets in accordance with a financial strategy that is consistent with the scheme’s overall aim. If a fund is handled in such a competent manner, then even someone with minimal information about investing in mutual funds should be able to search out wealth development by investing in liquid funds.
Whenever you have a sudden infusion of income, and you are looking for a way to make greater returns, you may consider investing in India’s liquid funds.