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Tuesday, November 17, 2020

HOW LIQUID FUNDS CAN GENERATE BETTER RETURNS THAN YOUR SAVINGS ACCOUNT WITHOUT ANY RISK



In this blog  we are going to talk about some one of the best LIQUID funds which can generate better returns than your savings account and sometimes even better than fixed deposit(FD). So here is the list of best funds which are nearly risk free and are generating better returns than your savings account past several years. 
           
               In savings account a person gets an average return of 3-4% excluding taxes and other charges but in liquid fund you can get an annual return of 6-7% without any taxes or charges with very very low risk. 





LIQUID FUNDS

Liquid funds invest in securities that have a low maturity period, usually less than 91 days. These funds provide easy liquidity and are least volatile than the other types of debt instruments. Also, liquids are a better option than traditional bank Savings Account. In comparison to bank account, liquid funds provide 7-8% of annual interest. Investors who want risk-free investment can ideally prefer investing in these funds. Expense ratio in these funds are very low, max at around 2.25% in India and 1% in america which is very low as compared to other debt instruments. 
                    One of the biggest advantages of liquid funds are that money invested in these funds can be withdrawn any time with a very low exit load fee. Money withdrawn from these funds comes into bank account within 1-2 working days.

Who should invest in Liquid Funds?

Since these funds provide liquidity and not high returns, it is advisable for investors searching for options to park their idle money to consider liquid funds as an alternative for a regular savings bank account. However, investors should not invest their entire emergency corpus in liquid funds as the redemption of the funds will credit the money only on the next working day. Ideally, liquid funds are suitable for achieving short-term financial goals. Since some funds generate around 8% to 9% returns, they should be preferred over a regular savings bank account which offers returns in the range of 4% to 6%. The asset allocation of liquid funds is such that there is hardly any risk, volatility, or default associated, provided one invests in the high rated (AAA or AA) liquid funds.

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