What is liquid fund?
A liquid fund is a type of mutual fund that invests primarily in debt and money market instruments. These funds are considered riskless investments since they generally have steady returns and have minimal chances of defaulting. Liquid fund investors are presented with the unique opportunity to benefit from relatively higher return on their investible surplus while having access to immediate liquidity.
Investing in liquid funds in India is governed by the Mutual Funds Regulations 1996 issued by the Securities Exchange Board of India (SEBI). Potential investors must be aware of certain factors before making any investments.
How to invest in Liquid Funds?
investors can also make use of online platforms which allow them to research, compare and select the right liquid funds with minimum hassle. Once selected, investors must go through a short sign-up process that involves submitting KYC documents to the AMC (Asset Management Company) associated with the investor’s chosen fund. After the KYC process is completed, investors can transfer monetary value from their bank account into the aforementioned liquid fund.
Liquid Funds vs FD
Liquid funds allow investors to access their money more easily while FDs provide higher yields due to their longer tenure. However, both options are subject to market risk and there are advantages and disadvantages to each one. For example, liquid funds may offer more flexibility but also come with high volatility, whereas FDs tend to be safer but may not earn as much in return.