Investing your money wisely often begins with understanding the financial instruments available in the market. One such option gaining popularity is the liquid mutual fund. A low-risk, flexible, and highly liquid debt fund, it offers the ideal blend of safety and convenience for investors. Let’s dive deeper into what makes this fund stand out and why it should be part of your financial portfolio.
Contents
Meaning of a liquid mutual fund
A liquid mutual fund primarily invests in fixed-income instruments like government securities, treasury bills, and commercial paper. These investments have a maturity period of up to 91 days, ensuring minimal interest-rate risk. With the net asset value (NAV) calculated every day of the year, these funds provide transparency and consistency in returns. One of their biggest advantages is the quick processing of withdrawals, mostly completed within 24 hours.
Image Source: Shutterstock
Key features of liquid mutual funds
Liquid funds have several standout features that make them a great choice for a wide range of investors:
- No entry or exit load: Unlike many other mutual funds, liquid mutual funds generally do not charge fees for entering or exiting the investment.
- Low-interest rate risk: By investing in short-maturity fixed-income securities, these funds maintain stability even during volatile market conditions.
- Flexible investment amounts: You can start small, with minimum investment requirements varying across fund programs, making it accessible for new investors.
How do liquid funds work?
The primary objective of a liquid mutual fund is capital protection combined with liquidity. Fund managers carefully select high-quality debt securities with short maturities, ensuring minimal risk while delivering steady returns. The shorter the maturity period of the portfolio, the lower the exposure to interest rate fluctuations. This approach often leads to returns surpassing those of traditional savings accounts.
Steps to buy mutual funds online
The process of buying mutual funds online is simple and efficient, making it a great choice for busy investors. Here’s how you can get started:
- Choose a trusted platform: Download a reputable app from the Play Store or App Store.
- Complete KYC: Finish the signup and KYC process required to invest in mutual funds.
- Select your fund: Browse through available options and invest in the liquid mutual fund that aligns with your goals.
This seamless process ensures that even first-time investors can confidently start their financial journey.
Reasons to invest in liquid mutual funds
There are several compelling reasons to add liquid mutual funds to your investment portfolio:
- Lower risk: These funds focus on principal protection and deliver steady, market-linked returns. Unlike long-duration securities, liquid funds remain stable across changing interest rate cycles.
- Flexibility: You can hold these funds for as long as you like. Although a small exit load may apply for redemptions within seven days, they allow flexible entry and exit options.
- Fast redemptions: One of the most attractive features is the quick redemption process. Investors can expect their funds within one working day, and some funds even offer instant redemptions.
Taxation rules for liquid mutual funds
Understanding the tax implications of your investments is important. Here’s how taxation works for liquid mutual funds:
- Dividend income: Any dividend income is tax-free for investors.
- Short-term capital gains (STCG): Gains from units held for up to three years are taxed at the investor’s income tax slab rate.
- Long-term capital gains (LTCG): Gains from units held for more than three years are taxed with applicable rates and are eligible for indexation benefits.
These tax-efficient features make liquid funds an attractive choice for short-term and medium-term investment goals.
Why liquid mutual funds are ideal for modern investors
With a strong focus on safety, flexibility, and quick access to funds, liquid mutual funds have become a preferred choice for individuals looking to park their money temporarily. Whether you are saving for an emergency fund or seeking better returns than a savings account, these funds offer an excellent balance of risk and reward. Additionally, the ease of investing through online platforms has made it easier than ever to buy mutual funds online.
A reliable option for financial security
The need for reliable, low-risk, and easily accessible investment options cannot be overstated. A liquid mutual fund ticks all these boxes, offering consistent returns, tax benefits, and unparalleled convenience. If you’re new to investing or simply looking for a haven for your funds, liquid mutual funds are worth considering.
To make the process even simpler, consider using a trusted platform like Ventura. Known for its user-friendly interface and exceptional trading tools, Ventura makes it easy to buy mutual funds online securely.
