Liquid Fund Benefits: 6 Ways to Use for Short-Term Goals

A majority of investors tend to overlook the liquid fund benefits, especially when it comes to managing idle cash. This approach prevents the investors from making their money work harder without compromising on their security. Liquid funds work best for short-term goals because they are liquid and provide better returns than traditional savings accounts. Therefore, if you are looking to set aside your surplus income or emergency needs, it can be a smart move to choose liquid funds. These funds are excellent to bridge the gap between growth and convenience.

Understanding Liquid Fund Benefits and Why They’re Popular

The primary areas of investment for liquid funds include treasury bills, commercial papers, and certificates of deposit. Thanks to this approach of the liquid funds, investors can look forward to earning steady returns with minimal risk. The high liquidity nature can be counted amongst the biggest liquid fund benefits. With this, investors can withdraw money quickly, making them an apt choice to tackle unplanned or sudden financial needs.

While fixed deposits and traditional savings usually come with lock-in periods or penalties, liquid funds provide investors with greater control and flexibility. What’s more, they also provide better post-tax returns compared to other forms of short-term savings instruments.

Six Smart Ways to Use Liquid Funds

Being a versatile investment instrument, liquid funds can easily be incorporated into your financial plan. Given below are six effective and practical uses of this fund:

1. Building an Emergency Fund

Liquid funds can be a perfect partner to tackle emergencies. As these investments are easily accessible, you can meet sudden household, medical, or travel expenses without compromising your long-term investments.

2. Parking Surplus Money

Rather than keeping extra cash in the savings account, parking the same in a liquid fund helps earn better returns. Because of this, your money growth will continue even if it is held for shorter periods.

3. Controlling Business Cash Flow

Liquid funds help business owners manage their working capital smoothly. Thanks to these funds, they needn’t lock up their resources for arranging cash through other investment options.

4. Temporary Shelter for Investment Funds

Waiting for the right opportunity to invest in long-term assets or equity is a good thing. This is where liquid funds can help you. These funds can hold up your funds temporarily while keeping them productive and secure.

5. Systematic Transfer to Equity Funds

Liquid funds can also be used by investors to transfer money into equity funds through STP (Systematic Transfer Plan). In doing so, they can enhance their portfolio discipline whilst reducing risks associated with market risks.

6. Achieving Short-Term Goals Through Financial Flexibility

Are you planning to make a large purchase, pay annual fees, or take a vacation?  Then do not worry. The financial flexibility you are looking to meet upcoming expenses can be handled smoothly by liquid funds.

Returns, Risks, and Choosing the Right Fund

There is a reason why liquid funds are considered low-risk investments. These funds focus primarily on short-duration instruments with healthy credit ratings. They may not yield fixed returns, but they are still predictable and stable when compared to other mutual fund categories. Even conservative investors are likely to find liquid funds attractive. This is because, in the past few years, these funds have yielded short-term returns exceeding savings accounts.

There are a few things you need to look at while selecting liquid funds, like the fund manager’s track record, the credit quality of underlying securities, and the fund size. Also, before you start investing, you need to figure out your comfort and horizon levels and ensure they align with the risk profile of the fund.

Final Thoughts

There is no denying the fact that liquid funds are an excellent choice for short-term goals as they offer better returns, flexibility, and safety as compared to idle cash. Investors can easily balance growth with liquidity when they use these funds wisely. Thanks to these liquid fund benefits, your money remains both productive and accessible.