If you have a question on should you invest in Debt Fund? This is the place to begin. Liquid Fund is considered to be safest, and most liquid fund, with easy investment and withdrawal options.
Beginners’ guide to Liquid Funds
• What is a liquid fund?
In financial terms, “Liquid” means asset which is as good as hard cash. Liquid Fund is a debt fund – mutual fund which invests in money market instruments, (Money market – Market for short term lending and borrowing – Commercial papers, Company bonds, treasury bills etc.) with maturity less than a year. This fund can be redeemed in as less as 24 hours.
• Why would you invest in liquid funds?
o No entry/ No Exit load (if not withdrawn within the lock-in period )
o Annual fee 0.30 to 0.70%
o Better tax benefits than FDs (Interest is taxable according to the tax bracket of the investor) [In the dividend option returns are tax free at the hand of investor]
o The return on liquid funds is generally 50 – 100 basis points more than savings account interest
o Maximum of 10 per cent or less mark-to-market component, indicating a lower interest rate risk
• How to invest in liquid funds?
Every Mutual Fund house have liquid fund. You can check a few, also may compare in Moneycontrol/ Valueresearchonline. You can invest in these funds through online easily through the mutual funds website or CAMS app/ Karvy app or normal offline procedures.
Liquid funds are good way to get introduced to the mutual funds – for the first timers. You can SIP in this fund to create a contingency fund/ emergency fund. This Debt fund is ideal for short term goals/ purposes like 6 months – 1 year tenure.
*When we put our money in Fixed deposit, that is also investing in debt.
