Know the Importance of Liquidity & Liquid Mutual Funds - MySIPOnline
Jun 07, 2017 3 min read

Know the Importance of Liquidity & Liquid Mutual Funds

Here’s how liquidity and liquid fund possess a pivotal position in your investment portfolio.
Have you ever thought what would you do if suddenly you lose your job, or meet an uncertain situation in life? Have you planned something to face its implications which involve lack of finances? Don’t you think you need to set a big plan for your sudden cash requirements? It’s time to think about these facts as you may suffer such a situation all of a sudden and then, you would not have anything to do except getting into debts.

At least some portion of your net worth has to be in liquid form. The primary aim of this liquid portion is to be there whenever you need it. Earning a return in this context is a less important factor. The reason being is that at the time of uncertainty the amount or the return earned doesn’t matter, what matters is the liquidity of that capital. So let’s elaborate the concept of liquidity and liquid funds here, and take a glance at the importance of these funds for one’s portfolio.

Liquidity & Liquid Assets

The term liquidity refers to the capacity of something to be turned into cash on an immediate basis. The liquid assets are those instruments which hold the capacity to get converted into cash whenever required. On one end of the scale, the liquid assets include the currency notes or coins that you hold with you and spend wherever you want immediately. These are the most liquid but least safe because they can be lost by fire, misplaced, and can be stolen, and you may lose them forever. On the flip side, there are certain assets like real estate, which will take months and even years in some cases to realise cash.

There are certain assets which neither let your money go lost anyhow nor you do lose its liquidity. The savings bank account is believed to be one of the best liquid assets providing simplest way of parking idle money with the benefit of easy withdrawals. However, there is another account which provides even more than that. The liquid mutual funds in India which occupy a stagnant position in the market because of the primary features they possess.

Should You Buy Liquid Funds for Your Portfolio?

Even if you don’t have any investment, maintaining a cash reserve is a must. It helps one gets rid of the sudden cash requirements in life, and one stays away from holding the debt burdensome. There may occur a tragedy or an extraordinary event, and you have no cash to deal with it. Have you ever thought how will you sustain? You must have a backup plan for such occurrences, and liquid funds help you with the same. Apart from providing liquidity, these funds have various other benefits due to which they are preferred among other instruments.

Higher Returns - The investments in the liquid mutual funds provide a high rate of return as compared to the savings bank account. As the funds have investments in the money market instruments, the profits are certain up to some extent, and one can fetch good growth on the idle money in a very short span of time.

Easy Convertibility - The schemes falling in this category provide easy convertibility as one can redeem the funds within 24 hours of purchase. There is no exit load or any other extra charges included in them, and thus one can simply opt for easy withdrawals.

Low Risk - The funds in the liquid schemes are parked in those money market instruments which have the highest maturity of up to 91 days. This means that the funds are not volatile in nature and hold the least level of risk.

ATM or Debit Card Facility - There are some liquid fund schemes which provide the ATM or debit card facility as well. One can also go for instant redemption through which the funds are credited to the bank account within 30 minutes.

Short-Term Investment Goals - Being a class of mutual funds, the liquid schemes tend to provide the goal-based investments as well. One can invest in them to attain the short-term financial goals with ease.

Accordingly, by investing in the best liquid fund schemes, the investors can fetch great returns in a very short term period and can finance their urgent cash requirements in the future. We, at MySIPonline, have the best liquid fund recommendations for your portfolio. You must get associated with us to grab maximum opportunities of the money market in India.

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