Put your Idle Money to work by investing in Liquid Mutual Funds

Most of us tend to have money lying idle in our savings bank account. We keep money in our savings bank account because we can draw it at any time using debit card or use it to pay utility bills, credit card bills and other expenses. However, there is an opportunity cost of keeping large sums of money in our savings bank account. Most banks pay 3.50-4% interest on balances in savings bank account.

Therefore, while savings back offers the convenience of “any time money”, your money is less productive. Money market mutual funds like liquid funds and Overnight funds offer convenience, liquidity and high degree of safety, yet much better returns than savings account, for money that you may not need for a few days, few weeks or few months.

Liquid fund invest primarily in money market instruments like treasury bills, certificate of deposits, commercial papers, treasury bills etc.,that have a residual maturity of less than or equal to 91 days, with the objective of providing investors an opportunity to earn more returns on very short term deposits.

As the name suggests, these funds offer very high liquidity. There is no exit load in overnight funds and upto 6 days for liquid funds. You can draw your money at any time, partially or fully, without any penalty or charges. Withdrawals from liquid funds are processed within 24 hours on working days.

Benefits of liquid funds –

Highly Rated papers : Liquid funds invest in highly rated money market instruments – which can be least risky.

Better yields on your idle money: Liquid funds can give 2 – 4% higher returns than savings bank accounts. They are ideal solutions for accruing stable income from your idle funds. From time to time, you receive large one-time cash-flows like bonus, investment maturity proceeds (e.g. FD, PPF, life insurance policies etc.) ; If you have on an average a balance of Rs 10 Lacs in your savings bank account, by investing it in liquid funds, you can get Rs 20,000 to Rs 40,000 additional income in the year. This may not seem a big amount, but? you can gift someone EarPods or a nice dress. This also helps you to create a habit of investing.

In fact, some AMCs? fund offer instant redemptions in liquid funds. Redemptions made through the AMC desktop portal or mobile app in such schemes gets credited to your savings bank account within just a few minutes.

Liquid fund returns depend on prevailing money market rates. Money market rates change with changes in interest rates in the economy.

Unlike savings bank account, there is no Tax Deducted at Source(TDS) on returns accrued in the liquid funds (for resident investors only).

In conclusion, it’s essential to ensure that your money is working for you optimally, even in the short term. As with any investment, it’s advisable to consult with a financial advisor to ensure that these funds align with your overall financial strategy and risk tolerance.