Liquid Funds :
You have sufficient fund and looking for better returns compared to fixed deposits.
Liquid funds are better than saving accounts and just like fixed deposits.
Liquid funds provide you better return ( average returns around 9.3% interest for one year.
See Returns of
SBI Premier Liquid Fund - Regular Plan (G) -
What is liquid fund and why less risky :-
Liquid funds are simply debt mutual funds that invest your money in very short-term market instruments e.g. treasury bills, government securities,commercial papers and call money that hold least amount of risk. These funds can invest in instruments up to a maturity of 91 days. The maturity is mostly much lower than that.
Lower maturity period of these underlying assets helps a fund manager in meeting the redemption demand from investors.
They are least risky as well as least volatile in the category of mutual funds for the following reason: one, mutual funds mostly invest in instruments with high credit rating (P1+). Two, unlike other funds, the NAV of liquid funds is not volatile as the only change in their NAV is mostly as a result of the interest income that accrues. In other words, given their short-term maturities, these instruments are hardly traded in the market. They are held until maturity. Hence, their NAV only sees a change to the extent of interest income accrued, everyday, including weekends.
Benefits of liquid funds
These mutual funds have no lock-in period.
Withdrawals from liquid funds are processed within 24 hours on business days. The cut-off time on withdrawal is generally 2 p.m. on business days. It means if you place a redemption request by 2 p.m. on a business day, then the funds will be credited to your bank account on the next business day by 10 a.m.
Liquid funds have the lowest interest rate risk among debt funds as they primarily invest in fixed income securities with short maturity.
Liquid funds have no entry load and exit loads.
Differ from ultra-short-term funds
Another category of short-term debt fund called the ultra short-term fund is also suitable for short-term investing. But these are one notch higher on the risk chart compared with liquid funds. This is because ultra-short-term funds can invest in short-term instruments that have a maturity of over three months. These instruments may also be traded in the market. Hence, the NAV may swing in response to market movements, making it a little more volatile.
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