Liquid funds fall under the category of debt mutual funds that invest in fixed income avenues like treasury bills, deposit certificates, commercial papers, and various other securities that mature in 91 days. Such funds do not have any lock-in period.
How do liquid funds function?
Fund managers ensure to invest in fixed income securities that have a maturity period of 91 days. This is because the major goal of a liquid fund is to cater to high liquidity at low risk with satisfactory returns. Fund managers just select highly rated fixed-income securities and invest by the investment objective of the scheme.
Listed below are crucial reasons why liquid funds must be considered for parking surplus investible:
Prudent for short term financial goals
Investors can opt for liquid funds to meet their short-term financial goals. Every individual has certain financial goals, which they look to attain through their investments. It is certainly why they get emotionally connected to their investments. Liquid fund investment can be prudent for mitigating your life’s short-term financial goals like home renovation, making down payment for a home purchase or dream car, or planning for a short trip abroad.
Prudent for forming an emergency fund
Anyone who designs their investment portfolio must initially keep a contingency fund to meet various financial exigencies. This is because if your investment portfolio contains just equity funds, then it may be prone to massive volatility. You must stay invested in equity funds for the long term if you want to avoid volatility over the short period. However, in events of financial exigencies, you must have some backup in the form of a contingency fund. Having this backup prevents you from redeeming your investments earmarked for your financial goals at a loss to meet the financial exigency. You can form your contingency fund by investing in liquid funds.
Liquid funds are extremely liquid i.e., you can liquidate your mutual fund units anytime. This feature allows you to make partial withdrawals of just the amount you require during financial contingency.
Select between regular and direct plan
There are 2 investment plans if you are seeking to invest in liquid funds. You can either opt for the direct plan or a regular plan based on your preference. However, before choosing any one plan, ensure to be aware ofits functionalities.
A direct plan is where you can purchase the mutual fund scheme directly by manually approaching the fund house. As you are buying the scheme from the fund house directly, the expense ratio of liquid funds with the direct plan is low. On the other hand, a regular plan is available via a 3rd party like an aggregator, broker, or fund advisor. You do not purchase the regular scheme from the fund house directly. Thus, the expense ratio of a regular plan is usually on the higher end. This is because the 3rd party selling the fund levies a commission charge to the fund house to sell the fund on your behalf. This commission charge is recovered by levying a higher expense ratio on regular plans. Thus, you must be careful when deciding between regular and direct plans.
Why is the Axis liquid fund a prudent scheme for forming your emergency fund?
Axis liquid fund comes to cater high liquidity with satisfactory returns in correspondence with reduced risk through a portfolio of debt securities and money market.
- Axis Liquid funds invest in money market avenues like treasury bills, certificates of deposits, commercial papers, etc.
- Axis liquid fund may be considered for parking your short-term investible or idle money.
- Axis liquid fund is liquid, which makes it a low-risk investment option.
- Axis liquid fund provides instant liquidation at any time. The instant liquidation feature permits you to redeem your invested money instantly by placing an online request.
Now, as you are aware of liquid funds and their functionalities, do devise a plan to invest in such funds. In case you are new to mutual fund investing and require any further help, ensure to reach out to a financial advisor.