Why Liquid Funds are Superior to Bank Accounts?

Why Liquid funds in India are a better option than banks? Read and find out.

If you had some savings and wanted to invest it for earning returns, where you’d like to invest it? Are you thinking of opening a savings bank account and lock it for years in it? How would you feel if you came to know that banks provide only half the reward that you can achieve?

Yes, it is true and you are not dreaming!

On the other hand, Liquid Funds are a superior alternative to the traditional bank accounts, where you can put your funds to earn high returns, which sometimes become double the amount what banks provide you. These funds are in high demand today, and we have covered all the reasons in this article that popularised them in the first place.

Why Liquid Funds are better for you?

  • High Returns
    Returns is the key reason to make an investment. Obviously you wouldn’t want to indulge in any activity that doesn’t provide you with the desired results. So, why you would not choose best Liquid mutual funds that can provide you with as high much as 9% returns, every year? Yes, that is correct, 9% every year. This is almost double the rate at which you get rewarded by the banks. So, if you have some spare bucks lying around, you know where to put them.
  • Accomplishing Short-term Objectives
    Liquid funds are a kind of debt mutual funds. They invest in short-term securities that have an average life of 90 days. Hence, these funds are best suited to short-term investments and can help you to achieve your short-term goals. Also, these funds have the capacity to grow your wealth faster than the bank accounts, which again makes them a far better option for achieving short-term objectives.
  • No Lock-in
    Since the Liquid plans are specially designed to sustain short-term objectives, they dwell no lock-in period. This means that you won’t have to worry about any exit charge if you were to withdraw your money at any time. This will save you some extra money which would otherwise gone into paying the exit load, which you may use to reinvest and grow your investment.

Who can invest in these funds?

Debt mutual funds are normally chosen by conservative investors, since they bear low risk. However, they are also picked up by the aggressive lads for the purpose of adding risk cover to their portfolio, making it better equipped to fight the market volatility and achieve steady growth.

Thus, there’s no mandate to invest in Liquid funds. You could be of any risk profile and still invest in the best liquid mutual funds to achieve your goals. Since most of the funds start with a nominal investment of ₹1000 – 5000 followed by a humble SIP of ₹500, a low budget will never be a problem.

Thus, there’s no mandate to invest in Liquid funds. You could be of any risk profile and still invest in the best liquid mutual funds to achieve your goals. Since most of the funds start with a nominal investment of ₹1000 – 5000 followed by a humble SIP of ₹500, a low budget will never be a problem.

What shall you remember while planning an investment in Liquid Funds?

Liquid funds are a far better option than traditional ways of making money. However, there are certain points that you must bear in mind before placing an investment in them, such as: -

  1. Returns
    If you are choosing a top-performing Liquid fund for your portfolio, then there are high chances of earning return to the tune of 8-9%. However, there are no certainties of achieving this value. The funds perform in a volatile market scenario, and hence, there cannot be any guarantee for the output.
  2. Cost
    Every fund has some cost to bear. These are normally expensed to keep the fund functional and attain a steady performance in the long run. Liquid mutual funds too use certain amount of your capital for managing itself, thus letting itself capable of producing huge wealth. The SEBI has mandated the upper limit of expense ratio at 1.05%. So, try to find out a fund that has an expense ratio around this value.
  3. Financial Goals
    If you have some urgent goals to achieve, then you must make an investment in Liquid funds. They are very useful in catching short-term goals, and can also provide you liquidity in case of emergencies.

Thus, you should invest in Liquid Funds if you have a small budget and want to make a short-term investment. Do take the assistance of your financial advisor for making a flawless investment.