Apr 29, 2017 3 min read

How to Choose the Best Liquid Funds for Your Portfolio?

If you have idle cash kept in your bank accounts, make the best use of it to earn excellent returns in liquid funds. Read this blog to know how to choose the right fund for you.
Saving money but with better earnings is a good idea but do you know what provides you with this benefit? It is a liquid fund, where your bank savings account offer you returns at the rate of somewhere around 4-5%, the liquid fund investments generate returns at 8-10%.

So you must have already understood, which is more beneficial for your savings. The thing that needs to be thought now is how to buy liquid funds? And here you will find the solutions and the features that will definitely attract you towards them.

Defining Liquid Funds

The liquid fund investments are those mutual fund plans which invest in the very short-term money market instruments and other debt securities. The funds have high liquidity due to the very short span of time in maturity. The returns in the schemes are highly impressive because the investments don’t get affected by the market moves and are least volatile. Accordingly, the risk in these plans is very less, and the chances of loosing capital are nil.

The funds do not have a lock-in period which means one can redeem or withdraw the money from the best liquid mutual funds as and when required. If we talk about the safety and security of the invested capital, the money is highly secure in these investments as the asset allotment is made primarily in the government or other secure short-term instruments which do not affect the returns on the investments.

Key Points to Keep in Mind While Buying Liquid Funds

1. Credit Risk - Although the schemes in the liquid fund category do not have high risk, it is quite important to take a glance at the portfolio concentration. You must analyse the risk factors of the scheme in order to measure the risk appetite of the investment avenues to make sure that the funds are not being misused and shall not incur losses on investment values.

2. Credit Ratings - The debt instruments are rated by the rating agencies which demonstrate the credibility of the securities in which the funds are being invested. You must analyse the credit ratings of the schemes so as to ensure that the funds are highly beneficial for the interest of the investors.

3. Portfolio - You must consider various instruments in which the investments have been made by the fund manager. Whether it is commercial papers, certificate of deposits or treasury bills. This will let you understand the capacity of the scheme to generate expected returns in the short span of time.

4. Try for Diversification - Mutual funds provide the best returns to the investors when the funds are diversified in the correct proportion into various investment alternatives. You too must try to opt for the plan that has an allocation of the assets in different instruments to maximise the returns.

Are Liquid Funds Suitable for You?

Before buying the mutual fund plan, it is important to consider whether you need it or not, or whether the fund best suits your current requirements or not. As discussed earlier, the liquid fund investments are just like a savings account and are in fact a better alternative to the bank's savings account. So if you want to gain substantial income on your idle money and create riches, then you must have liquid funds in your portfolio. With this, you would not only be able to multiply your savings, but there are several other benefits like instant redemptions, debit card or ATM card facility which you can avail.

Reliance money manager is one of the best liquid funds that tends to provide instant redemption within 24 hours of purchase, the amount for which is credited in just 30 minutes. So don’t miss out the best opportunity to value your savings, invest in liquid funds right away. At MySIPonline, you can purchase the best liquid funds online in a convenient manner. Our advisors will assist you in selecting the right fund as per your requirements to make your investments simplified.