What is LIQUID FUND? Advantages and Disadvantages of LIQUID FUNDS.

               Hello everyone today I discuss what is LIQUID FUNDS and advantage and disadvantage of LIQUID FUNDS.
                   

                       LIQUID FUNDS

LIQUID FUND is an open-ended DEBT mutual funds scheme ideal for short term investments.It invests primarily in money market instruments like certificate of deposits,T-BILLS, COMMERCIAL PAPERS and term deposits maturity of the fund 3-6 months investors can enter-exit the scheme whenever desired.Liquid funds are less risky and more stable than other debt funds because they invest in government securities and schemes.

  Advantage of Liquid funds:-here are some advantage of Liquid funds

   Low risk:-Liquid funds invest In government securities and therefore everyone knows that goverment schemes do not fraud and also investors money is safe therefore liquid funds are less risky.

 Quick redemption:- Any time when we want to redeem money we do it we get redemption in one day after request and some funds also offered redemption when we sell units.

        So if you want to invest in liquid funds instead of In your saving bank account.

   Who should invest in Liquid funds.:-

   1). Investors with a short term horizon

   2). Investors who want to invest in bank deposits because liquid funds also invest in bank  deposit for short term.

  3) Investors who want to park his money temporarily.

  Things to consider before investing in Liquid funds.:-Liquid funds are among the least risky debt funds and often viewed as substitutes for bank deposits. However, low risk does not mean zero risks! Investors should understand that liquid funds also carry a few risks.

First, like all mutual fund products, returns are not guaranteed. Bank deposits will always pay the promised interest amount on maturity, but the return from a liquid fund is variable because it depends on market interest rates. That is why investors should check the track record of a fund and opt for funds with consistently good performance.And also investing in liquid funds is not a wealth creator product.

     

    How find good Liquid funds:- Since liquid funds invest in short term debt with maturities up to 91 days, investors should look at one-month or three-month returns to measure fund performance. Returns over a longer horizon (one/three years) are not meaningful for a liquid fund.

• Fund Size:

   Liquid funds are largely used by institutional investors. In case of a sudden large redemption by an institutional investor, a small liquid fund would lose a significant part of its assets, which in turn would adversely impact its ability to invest and generate returns. Hence liquid funds with relatively larger assets under management km(AUM) are preferable to small-sized funds.

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