No one likes their money to sit idle especially in these inflation-ridden times when one’s income is never enough to take care of the present and the future needs of a person and their family.
People want higher return on their savings and want their money to work harder so that it can bring in more money. They try to save as much as they can but when it comes to investing their hard-saved money, many of them go for the tried-and-tested bank savings account. Sadly, bank savings accounts have begun to lose their old charm due to the low rate of return they offer but the good news is that other investment products have arrived on the scene that assure higher return and also offer more advantages.
The liquid fund is one such investment product that promises better return than the banks. It has been observed that the average rate of return on these funds has been as high as fixed deposit rates, shooting above 9%. In a few cases, it has been more as well. Isn’t it amazing? In comparison, saving accounts offer much less with their rates going southward. However, this is not the only reason to invest in a liquid fund. A smart investment plan in every sense, it offers you many more advantages that you would be delighted to avail.
- High liquidity – Liquid fund, as the name suggests, is high on liquidity and you can withdraw your money quickly as and when you wish on all the 365 days of the year. The money is credited to your bank account within hours of filing a request.
- Low risk – Liquid fund is not risk-free but it is quite secure. The risk is quite low as your money is invested into treasury bills, government securities and call money that carry very less risk and give high return.
- No minimum balance – Unlike bank savings account, there is no minimum balance that has to be maintained in a liquid fund. Liquid fund schemes allow withdrawal at any stage and there is no lock-in period.
- Great short-term plan – The liquid funds have a very short maturity period and thus, offer to be a fabulous investment option in the short run. Their high rates of return make them a super lucrative plan that lets you make more money in less time.
- Tax efficient – Liquid funds are tax efficient. First and foremost, the dividends received are not taxed at the end of the investor. The fund houses pay dividend distribution tax. Those investors who register gains before one year do pay tax at their end but it is same as that of the tax rate that is applicable on the savings account interest.
Selecting liquid fund
In the current scenario, more and more people are getting lured to liquid funds and rightfully so. It is a smart and substantial investment scheme. If you do not want your money to sit in the non-lucrative bank account then this is the route that you should take. However, you should keep some points in mind before selecting a liquid fund.
- Past performance – The rate of return the liquid fund has been offering gives a look at its future performance. So, the record of past few years should be analyzed before making an investment.
- Expense ratio – The cost of running and managing a mutual fund is reflected in its expense ratio. A liquid fund scheme with low expense ratio is cost-effective and it does not impact the return either.
- Fund manager tenure – Experienced fund managers with a good track record bring more to the table and they can be trusted with the money. So, you should prefer fund managers with long tenures and those who have proven their competence.
No doubt, liquid fund is subject to market forces but the short period and high liquidity make it score over the security of the bank savings account. Money resting in the bank account can be put to better use through a liquid fund and therefore, if you have surplus money, you should invest it in the lucrative liquid funds. They are only going to get bigger, brighter and better in the times to come.
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