Liquid funds invest in secure fixed-income instruments and give returns higher than a savings account while offering complete liquidity. Unlike other investment forms that require a lock-up period before an individual can access the money, these funds grant quick access to the invested amount. This blog will explain why such funds provide flexibility and access to the cash in a short time.
What Are Liquid Funds?
Liquid funds are a type of debt mutual fund that primarily invests in short-term debt instruments with set returns. These securities primarily include money market instruments such as treasury bills, commercial paper, and certificates of deposit with maturities of up to 91 days.
The main advantage of investing in these funds is their high liquidity, which refers to how quickly an asset may be purchased, traded, and converted into cash.
These funds allow investors to easily access their money when needed, making them an attractive option for short-term investments with consistent returns.
How Liquid Funds Offer Flexibility
Here is how liquid funds like those from Canara Robeco Mutual Funds offer flexibility to investors to access cash.
Easy Access to Your Money
One of the advantages of these funds is the ease with which you can access your investment. Units can be redeemed at any time thus eliminating the woes of having to pay exit loads or penalties in case one wants to withdraw.
This proves that these funds are perfect for addressing short-term goals as well as any emergencies that may come up. Thus, these funds are used when a person wishes to save money for a future expense, or even has extra cash which one might keep in an account, temporarily.
No Lock-In Period
In contrast to other debt funds like fixed deposits which require periodical lock-ins, liquid funds however do not have these limitations. This implies that you can pull out your money anytime, and does not entail you to part with any cash in respect to the investment option.
This feature is useful so that your money is not locked, so it has one of the highest flexibilities. Also, since these funds invest in short-term securities, there is little possibility of capital depreciation, thus making these more secure for those who may not want to risk losing their capital and at the same time earn returns.
High Liquidity with Low Risk
These funds are designed to offer high liquidity, meaning you can easily convert your investment into cash without significant loss of value. The underlying securities in these funds have short maturity periods, and since they are usually highly rated, the risk of default is minimal.
This ensures that investors can redeem their money at short notice without worrying about fluctuations in the fund’s value.
Alternative to Savings Accounts
For many investors, these funds serve as a better alternative to traditional savings accounts. While savings accounts offer liquidity, the interest rates are often low. In contrast, liquid funds typically offer higher returns without compromising liquidity.
This makes them an attractive option for individuals and businesses that want to keep their cash readily accessible while earning a better rate of return.
Final Words
Liquid funds are an excellent option for investors who prioritize flexibility and quick access to their money. Whether you are managing short-term financial goals or building an emergency fund, liquid funds provide a low-risk, high-liquidity option. With the ability to redeem funds quickly, minimal risk, and higher returns compared to savings accounts, they offer a solution for managing surplus cash.
