Liquid funds are a type of Debt Mutual Funds that mainly invest in short-term debt securities, offering fixed returns. These securities typically include money market instruments like treasury bills, commercial paper, and certificates of deposits with maturities of up to 91 days.
The disadvantages of liquid funds are as follows: Exposure to certain risks: Liquid funds may carry some risks like inflation risk, interest rate risk and credit risk. You can minimise some of these risks by choosing your mutual fund house and scheme after careful analysis.
A liquid fund investor can keep his or her money for as long as necessary. Although there is a minor exit load for redemptions within seven days, liquid funds have flexible holding periods. This allows for simple entry and exit while delivering safe, market-linked returns for the duration of the investment.
Since liquid funds invest in short-term securities, their market value is less affected by interest rate changes, leading to low capital gains or losses.
Thus, liquid funds carry relatively lower interest rate risk. Therefore, with minimal credit and interest rate risks, liquid funds may be considered a relatively safe investment option in the debt mutual fund category.
If you invest in a liquid fund, you'll be subject to short-term capital gains tax if you redeem your investment within three years. This means the gains will be taxed at your regular income tax slab rate.
Liquid assets are easy to turn into cash with little loss in value, making them ideal for covering unexpected expenses. Non-liquid assets are harder to convert into cash and often lose significant value if there are few buyers when you need to sell.
When you place money in a Liquid Fund, it has the potential to grow. In comparison, money lying in a Savings Account amasses mediocre returns, with interest rates of 3% to 4%.
As you discuss your plan with your financial professional, the discussion should include the most effective ways to manage cash. A widely accepted approach is to maintain a cash reserve that's at least the equivalent of six months of income.
“The main drawback of a CD is that it's an illiquid asset unless you're willing to pay the early withdrawal penalty," said McHugh. “On the other hand, the funds are FDIC insured and you're guaranteed a specific rate of return." Some CDs are offered with a one-time penalty-free withdrawal to entice savers.
Is a Roth IRA considered a liquid asset? Roth IRAs are more liquid than other retirement accounts because you can withdraw your principal contributions at any time without paying taxes or penalties. However, Roth IRAs aren't as liquid as other account types, such as savings and checking accounts.
Why would a person want assets with liquidity? Liquid assets can be spent easily and non-liquid assets cannot.
This budgeting rule states that you should allocate 50 percent of your monthly income for essentials (such as housing, groceries and gas), 30 percent for wants and 20 percent for savings.
If you're looking for the safest place to keep your money, look no further than a savings account. Your money will be insured by the FDIC, and you'll have access to it at any time via an online transfer or a debit/ATM card, depending on the policies of your bank.
Arbitrage funds may generate relatively better returns than liquid funds, but liquid funds tend to be relatively stable and consistent when generating returns for investors.
For Liquid Funds and Overnight Funds, the cut-off time for subscription is 1:30 p.m., while the redemption cut-off time is 3:00 p.m. All other schemes (excluding Liquid and Overnight Funds) have a 3:00 p.m. cut-off for both subscription and redemption.
The simple answer to this question is “yes.” There are two main types: (1) municipal bonds and municipal bond mutual funds and (2) tax-free money market funds. Municipal bonds are issued by state and local governments in order to finance capital expenditures; typically, municipal bond funds invest in municipal bonds.
Liquid funds have no restrictions of a lock-in period and are therefore considered to be low- to average-risk funds. Withdrawals (funds redemption) are processed within a day of the request. Units are allotted on investment on the previous day's net asset value (NAV).