Liquid cash is usually deposited in the savings bank deposits. But as the name suggests, a savings account is not an investment account and thus, the deposited money doesn’t earn much interest. Customers save their liquid cash in their bank account as the amount is accessible anytime.
Well, isn’t it wonderful if there is an investment vehicle that allows liquidity besides providing some returns? One such investment vehicle is ‘liquid mutual funds’. Experts suggest parking 1 month’s expenses in the savings account and 3 to 6 months expenses in a liquid mutual fund, so that the money grows money.
What Are The Benefits Of Liquid Mutual Funds?
Liquid funds are debt mutual funds that invest your money in short-term market instruments such as government securities, treasury bills, and call money. Benefits from the liquid mutual funds include:
- The earnings earned through dividends are tax-free.
- Post-tax returns after dividend distribution tax are better than the returns from the savings account.
- No exit load on the redemption of liquid funds done overnight.
- Liquid funds provide the discipline of not keeping excess unproductive money with self.
- They contribute to long-term investment goals.
- The best part is even while you rest, your money does not.
- Liquid fund investments are considered least volatile as they are invested in instruments with high credit rating, hence least risky.
- Investors can redeem and get the money in their bank account on the next working day of the redemption.
When Can You Invest In Liquid Mutual Funds?
If you have a short period to invest, it is better to park your money in liquid funds as they invest in instruments up to a maturity of 91 days. Park your money for short periods ranging from 1 day to 3 months.
For example, if you have money for a tour planned after two months, or celebrate an occasion after some months or make an instalment payment, park in liquid mutual funds and earn on your deposits. Even if you see a sudden cash influx or get a huge bonus, it is a good idea to invest in mutual funds.
Thus, it is better to park excess liquid cash in channels that help earn better returns at the same time provide liquidity. Returns from the liquid mutual funds are usually higher than the returns from bank savings account. Take wise money decisions to let your money earn more money. For more advice on personal finance form experts, approach online advisory ArthaYantra. Our mission is to bring high-quality, research-based financial planning advice to every household.