Every human always wants to save money for future. This has been keen desire for every Indian family. Many times we hear from our parents, relatives, friends and incentives that save money for future. After hearing that we spend our teenage and when we put first step in adulthood and earn first rupee of our own labor the thought come in our mind ‘I should save money for future.’ Then we start to search the way of saving and ask many of our elders for our quest. The most of them answer us ‘Invest your money in FD to earn more interest.’ But is FD final fix for each and every investor?
No, obviously not. There are many other investment options but most of us are strike with FD due to lack of adequate knowledge. Here we will check if any investment option out there which is better than FD?
Yes, out there are many investment options.
Then, which is the option?
Ans. –Liquid funds.
To see how liquid find is better option let we do some more quests on FD and Liquid funds.
What are Fixed Deposits?
- Fixed Deposit in its short form FD is provided by banks.
- It offers investors a higher rate of interest than regular saving accounts, till the given maturity date.
Is there any loophole in FD?
- Yes, the loophole is – investor can not withdraw from FD till maturity. If he prematurely withdraw that, then he has to pay some penalty amount charged by bank.
- Here, the liquidity is ground level comparing liquid fund. Banks gives higher rates of interest than saving accounts as compensation for the slow liquidity flow.
- The other disadvantage of investment in FD is it can’t beat inflation with its fixed return over the period.
Why FD is preferable investment for investors?
- FD provides them guaranteed returns.
What is Liquid Fund?
- A liquid fund is one kind of mutual fund.
Where do liquid funds invest?
- It invests money in various money market instruments like term deposits, certificate deposits, commercial papers, and treasury bills. A liquid fund sanctions you to invest your fund for days or months as they have maturities up to 91 days.
Why liquid fund is called liquid?
- liquid funds provide liquidity as they can be withdrawn anytime say after 1 day, 10 days, 1 month or more time without charging any exit load.
- This is the key benefit of liquid funds as they don’t charge any Exit load and get return for the holding period.
Why it is so liquid?
- The answer is within its policy of investment. As we all know liquid fund invests money in market instruments.
Are Liquid funds safe?
- Liquid fund has negligible risk. It is considered comparatively safer than other funds debt or equity funds.
Do they offer guaranteed returns?
- They do not offer guaranteed returns as fund performance completely depends on changing market trends.
- Over the period liquid funds or debt provide good returns over FD so that It can beat inflation as well
Is there any Loophole in Liquid funds?
- Yes, there is a loophole of it – liquid fund earns returns from market so liquid fund’s return can goes up and down depending on the market rates. It is mostly influenced by the liquidity situation.
What is the minimum investment amount for Liquid Funds?
- You can start investment in liquid mutual fund with as less as 100 INR, on the other hand there is no limit on maximum investment.
What is the lock-in period and exit load?
- Liquid funds have no lock-in period and exit load.
Advantages of investment in liquid funds:
So, I think now you might understand advantages of investment in Liquid funds.
Here we go…
- Without lock-in periods, liquid fund is easily accessible if we compare it with bank FD. It never penalizes its investor like bank for pre-mature withdrawal.
- It hasn’t an entry or exit loads.
- You can sell them before 2 pm and get the funds on the same day. If you sell them after 2 pm, you would get funds in your account by next day morning.
- You can redeem the within 1 working day.
- Lowest interest rate risks as they invest in short term fixed income debt securities.
- Fixed deposit provides guaranteed returns while returns are not guaranteed in liquid funds, they can be lower or higher than FD.
- You can get Liquid funds with various plans like growth plan, dividend plans, daily dividend plans, weekly dividend plans, monthly dividend plans etc.
- You can invest in direct plans as they contain a low expense ratio and provide high returns.
- Good liquid mutual funds can be selected by investors according to Value Research Star Rating, Crisil Rank, high Assets under Management and past year’s performance.
To park money for short term of 1 to 6 months, the best bet for you is liquid funds.