suppose you have some ideal money in saving bank account which you will need that money within 12 months period, But you want to park that money somewhere so you can can get at par inflation-adjusted return and of course more return than given by your saving a/c. in this scenario first thing come to your mind might be bank FDs. well you can put money in short term FDs but when you need money suddenly and you withdraw FD then you have to pay panelty and your actual retun can come down significantly. in such scenario Liquid Funds scores more than short term FDs. There will be no entry, exit load on liquid fund if you withdrwa amout after lock-in period (generally lock-in period is 7-10 days).
what is liquid funds?
Liquid funds are used primarily as an alternative to short-term fix deposits. Liquid funds invest with minimal risk (like money market funds). Most funds have a lock-in period of a maximum of three days to protect against procedural (primarily banking) glitches, and offer redemption proceeds within 24 hours. The minimum investment size in a liquid fund varies from Rs. 25,000 to Rs 1 lakh.
Advatages of liquid funds:
- the biggest advatge is tax advatage especially when your income fallin top bracket. on
divideneds you get from liquid funds, you don't have to pay any tax.
- you can withdraw your money more easily withous panelty as compared short term fixed deposites.
- Usually liquid funds (or good liquid funds) gives more returnt than FDs.
examples of liquid funds:
HDFC LIQUID FUND (G)
BOB LIQUID FUND (G)
CANARA ROBECO LIQUID FUND(G)
DBS CHOLA LIQUID FUND – REGULAR (G)
ING LIQUID FUND (G)
LIC MF LIQUID FUND (G)
TATA LIQUID FUND (G)
so in conclusion if you want to park money for short term then Liquid Funds are great tool to park money.
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