Liquid funds are solid investments

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There are several occasions when funds are required on immediate basis. It could be the school/college fee of children, or some medical expense. At that time unlocking an FD comes to mind. But a premature withdrawal entails a penalty. So, is there an investment option where one can get a good return and easily withdraw the principal amount whenever required? he wants?

To tide over such situations, it is advisable to invest in ssome liquid mutual funds. A lot of people know about FD. They save money for 1 year, 2 years, 5 years, or 10 years through FDs. But people are not well aware of liquid mutual funds. So, let’s understand what liquid mutual funds are. Liquid funds come under debt mutual funds. They invest in debt instruments and money market securities maturing in 7 to 91 days. There is no lock-in period for liquid funds. This means after 1 week, you can easily withdraw money from them.

Anyone can require money in times of need. As per Scripbox report of October 2022, Indians were willing to increase their savings and start making emergency funds for a rainy day. But where should you put your emergency fund? In bank FDs or in liquid mutual funds? Even seasoned investors get confused about it. As RBI was on a rate hike spree, interest rates on bank FDs also increased. On the other hand, mutual funds are also becoming quite popular. As there are investment options for all kinds of investors in mutual funds.

A one-time lump sum investment FD is a good alternative. But you have to keep in mind that there is a lock-in period in FD, and for that period you cannot withdraw the amount without incurring a penalty. Hence it reduces your return. On the other hand, there is no lock-in period in liquid funds. Which means it is very easy to withdraw money from them. Given the short-term nature of these securities, liquid funds are least risky in debt mutual funds. In this, you get a refund in just 1 working day. Most of the liquid funds allow each person to withdraw at max 50,000 rupees from each scheme in a day. Various mutual funds also provide ATM cards to withdraw money from liquid funds.

So where should one invest? In FD or in liquid funds?  If someone has excess money, and they want to get a fixed return, then they can invest in FDs ranging from 7 days to 10 years. If you want a higher return then you can invest in long-term FD.

But if you are an investor who always wants to keep some liquid money for emergencies, then your first priority would be the flexibility of the investment scheme. Meaning how easily you can withdraw your money from the scheme. If we compare a liquid fund with FD, then it’s clear that both have their pros and cons. Liquid funds are very liquid and accessible. On the other hand, FD provides you fixed return after a fixed interval. Now each person can invest as per the needs. Liquid funds are best for such investors that are willing to take low to medium risk.

On the other hand, FD is good for such investors that are not willing to take any kind of risk.

First of all, an investor has to look at his goal and then make investment accordingly. Your portfolio should fit your investment horizon and goal. Based on that you should invest in FD and liquid funds. Experts also suggest that if you have to make emergency fund for short term, then its better to invest in liquid fund.