As cliché as it sounds, the only thing certain about life is its uncertainty. You never really know what may happen in the split of a second. It is practically impossible to be 100 percent prepared for every unpleasant surprise life may throw at us, but there are some things we can do to try and minimize our risks by making investments of different sorts.
Let’s have a look at one of the best types of investments you can make in order to maximize your chances of quick monetary gains.
Liquid Fund
This is a debt oriented Mutual fund variety which isn’t invested in the stock market. This cuts out the risks involved to a major degree. These funds only invest in securities that are ready to mature in a short span of time, like treasury bills, government securities etc.
This means the gains are surer and quicker to come by, thus making liquid funds lot more feasible for investors. Market movement such as interest rates as well as other economic factors don’t have an impact on liquid funds, and this is what makes them an ideal investment option to deal with the uncertainties of life and money.
Why Liquid Funds?
- You can enjoy instant liquidity of your amount without having to wait for approvals
- Undoubtedly better returns than savings account, making it a feasible deal
Risks Involved in Liquid Funds
Even though they are not a 100 percent risk-free, the stakes are definitely lesser with these funds. Most intelligent investors stick to liquid fund investments with large AMCs as they have a big team for research and risk analysis before the investment is made.
The Use of Liquid Funds with Systematic Transfer Plans
Several factors such as their low volatility, zero exit costs, and steady returns make it feasible to be used in Systematic Transfer Plans.
For example, if you have a huge amount of money in your savings account and you wish to invest it in equities. In such case, if you are unsure about the market factors that can act upon your amount, you can instead choose to convert your amount into liquid funds and further initiate an STP to an equity fund for the same.
Over a period of time, this amount would be strategically transferred into an equity fund of your choice. In this manner, your money will be safe from the interim market changes. Besides this, your money is going to earn better with this investment, rather than sitting ideally in your bank account.
The Tax-ability of Liquid Funds
The profits that you earn from your liquid funds are taxable according to the income tax bracket you fall in; provided it is done within a span of three years. In case you hold on to your liquid fund units after the span of three years, there will be indexation, and flat 20 percent tax levied on the same.
The Duration to Getting Money Back from Liquid Funds
You can literally get it back within half a day. If you log in a request to get your money back before 3 p.m on any given day, your money will be back by the next day.
Besides this, it has become mandatory for AMC’s as directed by SEBI to allow instant redemption of amounts up to 50000 INR. Several AMCs are already following this practice.
Points to Keep in Mind While Making Liquid Fund Investments
- Research well to determine the tenure, interest rates, premature withdrawal procedure and so on
- Check the performance track record of the liquid fund before investing
- Have a look at the scheme portfolio of the particular investment you wish to make
- Inquire about the overdraft facilities, online account operation and the auto-renewal scheme that are offered before you invest
Needless to say, all investments involve certain risks, and you must read all scheme related documents to the last detail!
