Here's Why Liquid Funds Should be Your First Investment

Image Source: Shutterstock

Many people keep telling themselves they will invest when they make more money or get around to it ‘someday.’ The only reason behind not investing is the lack of knowledge about investing in suitable financial instruments. If you have also been worried about the ups and downs in the market, you might be sitting on the sidelines, waiting for the right time to take the plunge.

Here’s the thing—putting off investment decisions actually costs you more than you can imagine. While waiting to invest, you could miss significant financial gains. If you are not ready to take more substantial risks, it is time to start with less-riskier liquid fund investments. Call financial advisors to help you take calculative risks while investing in some of the best liquid funds.

Let us dig deeper into the definition and benefits of liquid funds.

What are Liquid Mutual Funds?

These are a type of funds that invest in short-term financial instruments offering fixed interest, like government securities and treasury bills. In the debt funds category, liquid funds carry the lowest risk over the investments.

By investing in some of the best liquid funds, you can enjoy high capital safety and higher liquidity. It means your money will stay safe, and you can withdraw funds whenever possible.

Why Should Beginners Invest in Liquid Funds?

If you are new to investing money, here is why you should start the investment journey with liquid funds:

Higher Returns Over Idle Cash

As a beginner investor, you must consider two primary things—low risk to capital and optimal returns, if not more. Otherwise, you would continue keeping your hard-earned money in a savings bank account, no matter how much return you get from there.

Consider liquid fund investments as an alternative to parking your idle cash in some bank. Investing money in the best liquid funds can give you performance-based incentives and similar other gains at aa higher rate than your savings account. If you are looking for short-term investment havens, liquid fund investment allows sense of ability to Manage Your Investments
Lack of investment knowledge is one reason for facing a high capital loss risk. However, you should still pursue your investment plans. Another reason you should start with liquid funds is the active participation of professional fund managers.

They invest their money in instruments of high credit quality and allocate capital according to the fund’s objective. To maintain capital safety, they ensure that the entire portfolio's average maturity period is only three months. As a result, the fund returns do not experience significant value change over the period.

Low Expense Ratio

Mutual fund companies charge investors a fee to manage the fund. The fee includes the management fees and operating costs of the fund and is calculated by dividing a fund’s operating expenses by the average value of all the assets in the fund.

While you invest in the best liquid funds, you would only face a low expense ratio compared to the returns they offer over the short term. Also, the Securities and Exchange Board of India (SEBI) has defined the upper limit of this ratio under regulation 52 of the SEBI (Mutual Funds) Regulations, 1996.

Invest in Liquid Funds Based on Your Financial Goals

Liquid fund investments are highly useful to park substantial idle cash. Although the investment period is limited to 91 days, even with the best liquid funds, you can plan the long-term investment decisions based on various life goals. For instance, you can plan to invest in liquid funds to create an emergency fund. While receiving optimal returns, you will also have the flexibility to take out your money for emergency needs. For investment planning needs, reach out to financial advisors like FinEdge. They will help you invest right for your specific life goals.