Keep hearing and seeing stuff related to liquid funds such as bonds, government securities and so on? But never invested in any liquid portfolio because you think you lack the knowledge and time to invest in such financial avenues? This article will help you know how investing in a liquid fund is going to be a beneficial decision of your life. If you want to find out why you should start investing in liquid funds, read on.
Returns on liquid funds versus savings account:
Your savings account can give you returns of only about 4-6% rate of interest. On the other hand, the best liquid funds have provided an interest rate yield of about 7.5-8% that too in a one year period. Thus, liquid funds give higher returns than savings account any day.
Planning for a contingency fund:
As a business or individual, one must be prepared for any emergency financial crisis. With contingency planning, you can do so for any foreseen and unforeseen economic circumstances.
If you wish to start a SIP, you should not use that amount elsewhere. You should wait for the liquid fund corpus to reach the amount you want at the end of the period. You are saving up for a goal so let your investments grow.
Way to invest in equity:
When you take SIPs, you can invest in equity funds. Many individuals tend to transfer the amount from their savings account into the selected equity funds. However, if you need balance in your savings accounts for your daily financial needs, it is not a wise decision. It is good to have a separate account for your investments and another for your regular needs.
Ultra short-term bond funds:
These are short-term funds that invest in securities with a maturity period higher than 91 days. They are very similar to liquid funds. But in the case of liquid funds, these securities invest in debt avenues with a maturity period of up to 91 days. Thus, they have a chance to earn higher returns. However, with the higher returns, the risk intensity also goes higher.
Why do you invest in liquid funds then?
So, liquid funds give investors the advantage of diversification in their portfolio. Moreover, they are very flexible and also have a short-term duration of the investment. Thus, it makes sense to have liquid funds in your portfolio. When choosing a liquid fund, keep the risk and returns of the funds on your mind. It is a good move to start investing in SIP through a liquid fund.
Want to invest in liquid funds? Head to a financial planner now!