Financial Awareness Level
What is a Liquid Mutual Fund scheme?
A liquid scheme is a type of open ended scheme that invests in debt and money market instruments with maturities of up to 91 days. These schemes aim to provide high liquidity, low risk, and stable returns, making them a preferred choice for parking surplus cash.
How Do Liquid Mutual Fund scheme Work?
Liquid funds invest in financial instruments such as (Please note that below instruments are illustrative in nature):
- Treasury Bills (T-Bills)
- Commercial Papers (CPs)
- Certificates of Deposit (CDs)
- Repurchase Agreements (Repos)
- Government Securities (G-Secs)
These instruments offer stable returns with minimal risk, making liquid scheme a better option compared to equity funds.
Benefits of Liquid Mutual Fund scheme
- High Liquidity: Investors can redeem their investments quickly, usually within 24 hours.
- Low Risk: Investments in short-term instruments reduce market volatility.
- No Lock-In Period: Investors can withdraw funds at any time without penalties.
- Tax Efficiency: Gains from liquid funds are taxed as capital gains, which can be lower than traditional fixed deposits if held for more than three years.
Who Should Invest in Liquid Mutual Fund scheme?
- Individuals looking for better returns than a savings account.
- Businesses and corporates managing short-term liquidity.
- Investors with idle cash who want easy access to their funds.
How to Invest in Liquid Mutual Fund scheme?
- Choose a mutual fund house offering liquid scheme.
- Compare the expense ratio and past returns.
- Invest through a direct mutual fund platform, a financial advisor, or an online broker.
- Start investing via a lump sum or Systematic Investment Plan (SIP).
- Track scheme performance periodically to optimize returns.
Risks Associated with Liquid Mutual Fund scheme
- Interest Rate Risk: Minor fluctuations in interest rates can impact scheme returns.
- Credit Risk: If an issuer defaults, it may affect scheme performance.
- Market Liquidity Risk: In extreme market conditions, liquid scheme may face redemption pressure.
Liquid mutual fund scheme are one of the options for short-term investors looking for stable returns and high liquidity. They offer a balance between safety and better yields , making them an ideal choice for managing surplus funds efficiently.
Additional Links:
What is a Mutual Fund? - Beginner's Guide to Investing
AMFI - Introduction to Mutual Funds
FAQ Section
Are liquid mutual fund scheme safe?
They carry comparatively less risk due to their investments in short-term instruments but are not entirely risk-free.
How soon can I withdraw my money from a liquid scheme?
Most liquid scheme allow redemption within 24 hours on business days.
Do liquid mutual fund scheme have exit loads?
Most liquid scheme do not have exit loads if withdrawn after seven days.
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An Investor Education And Awareness Initiative
Visit https://www.hdfcfund.com/information/key-know-how to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website (www.sebi.gov.in/intermediaries.html). For any queries, complaints & grievance redressal, investors may reach out to the AMCs and / or Investor Relations Officers. Additionally, investors may also lodge complaints directly with the AMCs. If they are not satisfied with the resolutions given by AMCs, they may raise complaint through the SCORES portal on https://scores.sebi.gov.in/scores-home/. SCORES portal facilitates investors to lodge complaint online with SEBI and subsequently view its status. In case the investor is not satisfied with the resolution of the complaints raised directly with the AMCs or through the SCORES portal, they may file any complaint on the Smart ODR on https://smartodr.in/login.
The information is for general purposes only and not an investment advice. Readers should seek professional advice before taking any investment related decisions.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY
