“Liquidity is the oxygen of any financial system”, goes the popular saying. If you wish to manage your salary as well as expenses and go on an occasional splurging spree at the same time, liquid funds are your best bet! For instance, if you receive your salaries on the 1st of every month and a large portion of it remains idle till the 15th, you can invest this amount in liquid mutual funds and secure handsome gains over the short term! The top liquid funds often outperform their benchmarks, registering annualized returns of 6% or more!
These are funds that guarantee high returns. Withdrawals are possible at any time during the investment tenure and there is no lock-in period. The primary objective of liquid fund investments is to provide liquidity over the short term without disturbing the initial investments. These funds are linked to debt instruments that offer superior credit quality over a short duration. The average maturity period for these instruments is ninety-one days. There are no exit loads. You can even choose to remain invested for a day and mop up clean returns!
Some of the most prominent advantages of liquid funds include:
#1 - Handsome Returns
When you choose these funds, you are likely to reap returns to the tune of 6 to 8%, which is higher when compared to other investment avenues offered to us.
#2 - Ideal for Funding your Short-Term Goals
If you are planning to throw a lavish party for your anniversary celebrations next month or yearning for an exotic vacation to Europe or America in the upcoming holidays, liquid fund investments would be your ideal tool for a lifestyle upgrade! You can invest for shorter tenures and withdraw funds whenever you need them without having to cause any turbulence in your initial investments.
#3 - Highly Effective in Salary Management
Investing in liquid mutual funds is a great alternative for you instead of allowing your paycheck to remain idle! Decent earnings can be collected over the short term and the earnings can then be added to your salaries for registering significant highs. This way you can gain control over your salary increments, month on month!
#4 - Smart Expenses Planning
If you are a businessman or an entrepreneur who needs to pay salaries worth 4 lakh to your employees on a designated date every month, parking this amount for a mere 10 days in a liquid MF will reap an interest of close to 7%! Now calculate how much you are likely to earn if you repeat this for 5 years in a row! The catch is to plan expenses well and invest in these funds wisely not allowing money to sit idle.
#5 - Flexibility in Investing
These funds offer limitless flexibility in investments like dividend payout and growth, with monthly and weekly frequencies. You can even transfer the money to equities when the valuations seem befitting.
Like other mutual funds, liquid funds can be signed up online. If you hold these funds for a tenure of fewer than 3 years, capital gains generated from it will be added to your income and taxed at a marginal rate. If the funds are held for over three years, capital gains tax will be applicable at 20%.