Liquid funds are basically Debt Mutual Funds that invest your money in short term and highly liquid Money Market Instruments like Treasury Bills, Commercial Paper and Certificates of Deposits, which don’t have much risk. The NAV (net asset value) of the Liquid Mutual Funds are calculated for 365 days unlike other debt mutual funds, where NAV is calculated on business days only.
These are Money Market Instruments which are highly liquid and have maturity period of less than a year, making it an attractive investment option. Liquid funds have the lowest risk vis-a-vis other debt funds. Another key benefit of the liquid funds is that they do not have entry or exit load.
Want to know more on Debt Funds? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.
Given below is the list of investors who must invest in Liquid Funds based on financial goals:
Expected Returns: Liquid funds have been consistent in generating returns ranging from 6.5% to 7.5% a year.
Cost: There are fund managers who are responsible for managing your portfolio. So, the liquid fund charges a fee to manage money efficiently. This is known as expense ratio. You must also keep in mind the cost/ expense ratio while investing in liquid funds.
Investment Horizon: Liquid funds are meant for short term investments where you park surplus cash. For investors having a long term investment horizon; they may look at investing in ultra-short term funds to get relatively higher returns.
Financial Goals: Liquid funds help investors meet financial goals. If you want to create an emergency fund, then liquid funds are very useful. Not only do they offer higher returns, but also high liquidity that can prove useful in case of an emergency.
SEE ALSO: Liquid Funds Vs Fixed Deposits
The performance plays an important role in the selection of funds. The investors always want to invest in funds that offer good returns. The best funds are those which have outperformed their benchmark and peer funds consistently for a period of 3, 5 and 10 years. Make sure to analyze the performance and invest in those liquid funds that match your requirements and financial goals to enjoy high returns.
The investor must also check the history of the fund house. This is an important criterion for fund selection. If a fund house has a history of consistent performance then this fund house can be trusted, as they offer constant returns during market ups and downs. A fund house that has a good track record of at least 5 to 10 years can be a good investment option for investors.
Expense ratio is the total percentage of fund assets, used for administrative, management, advertising and all other expenses. The average expense ratio for an actively managed mutual fund is between 0.5% and 1% and can go up to 2.5%.
Expense ratio shows the operating efficiency of the mutual fund scheme. It shows how much of your investment is being used to manage expenses of the funds. A lower expense ratio means higher return for investors. So, keep in mind the expense ratio before investing in liquid mutual funds. Choose a fund with lower expense ratio which can give superior returns.
A financial ratio (also known as accounting ratio), is a comparison in which certain financial statement items are divided. Financial ratios are used to gain information on the company performance. It is an interpretation rather than a calculation. This makes financial ratios a useful tool for business managers and investors. There is a range of financial ratios available that are used to analyze the performance of funds, based on different parameters. You may employ tools like standard deviation, alpha and beta to examine the risk-adjusted returns and relative risk in a fund. A fund with higher standard deviation and beta is riskier than a fund with lower beta and standard deviation. Look for funds with higher Sharpe ratio which means it gives higher returns with every additional unit of risk.
SEE ALSO: How to Invest in Liquid Funds?
Have a complaint against any company? IndianMoney.com's complaint portal Iamcheated.com can help you resolve the issue. Just visit IamCheated.com and lodge your complaint. If you want to post a review on any company you can post it on Indianmoney.com review and complaint portal IamCheated.com.
Be Wise, Get Rich.
This is to inform that Suvision Holdings Pvt Ltd ("IndianMoney.com") do not charge any fees/security deposit/advances towards outsourcing any of its activities. All stake holders are cautioned against any such fraud.