Hello Readers!
Liquid Funds are considered as the best alternative to Savings account as per the financial advisers. These funds are a kind of debt fund that invests in very short maturity debt and money market instruments.
An open-ended fund with very short maturity, these funds also contain good liquidity, investors can invest and redeem in theses funds as per their requirement, any time. As these funds are a short-term investment, returns from these schemes reflect the current trends in interest rates.
Many investors invest in these funds with the prior motive to build a good emergency fund, for their hard times. Like other mutual fund schemes, liquid funds have also suffered from the impact of the CORONA CRISIS. Currently, these funds are delivering annualized returns of 5.5%-6% which is less as compared to last year's annualized return that is 6.5%-7%.
Low annualized returns from the liquid fund are disappointing the investors. Many of the investors are thinking that it's better to move to a higher return fund or leave money in the bank itself, instead of investing it in the Liquid fund currently.
However, as per the advisers, the low annualized returns from the liquid fund is in line with the downward trending interest rates in the economy.
If you are also one among those Liquid Fund investors who are planning to move to a higher return fund or planning to leave the money idle in a bank account, I would suggest first read the following points:
LOWER DEPOSIT RATES
The deposit rates offered by banks in the current condition is also low. For example, SBI is offering a 4.8% annual interest on a 6-month fixed deposit and around 5.5% interest on a one-year deposit, whereas HDFC Bank is offering 5.25% and 5.8% respectively. Also, SBI has lowered its saving bank interest to 2.75% per annum.
If you compare you can easily analyze that the returns offered by Liquid fund are comparatively better than bank deposits. These funds offer good liquid, you have various options like you can invest in these funds for a couple of days or a couple of months and can get good benefits than bank deposits. Also, to invest in Liquid funds, it is not mandatory for you to become the customer of the bank, which is compulsory in bank deposits.
LIQUID FUNDS ARE EASILY ASSESSABLE
Redemption and investment in Liquid Funds can easily be done via the online method, they are easily assessable. Also, there is an instant redemption facility of up to Rs 2 lakh, and the returns will be received in the bank account in a very short time.
LONG TERM INVESTMENT AVAILS TAX BENEFIT
Although short-term fund does not give the benefits of taxation, in case if the investors do not redeem their funds from Liquid funds and carry it for the long term, say for three years or more, the tax benefits outweigh other short-term investment options.
HIGH RETURNS MEANS HIGH RISK
In case you are willing to earn a higher return from Debt Funds, then you can look towards investing in other Debt funds like Ultra-short-term fund or Short-term fund. These funds are currently giving an annualized return of 7%-9%. Remember to invest in these funds only when you have the capacity to continue your investment for 6 months or more.
Liquid funds are a short-term investment and an ideal option where you can park the money that you may need at any time. You need not chase the returns when you are investing Liquid funds, instead, you should look towards optimized returns with stability.
For any kind of investment query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).