One of the numerous varieties of mutual funds that are now on the market is known as a liquid fund. They put their money into assets that are only held for a limited period of time, including treasury bills, sovereign bonds, repos, deposit accounts, and commercial paper. These are debt funds that give businesses the ability to raise capital for a period of up to ninety-one days at a time. Because there is often no danger associated with such assets, extremely safe and short-term funds like these are typically a good choice when it comes to putting money away for unexpected expenses.
1.Corpus in exigentibus
Because a crisis might occur at any time, it is important for one to set aside money in a savings account specifically for this purpose. Events such as the unexpected loss of a job, a medical emergency, or a temporary disability as the result of an accident are examples of things that might interrupt your normal income. It is vital to develop an emergency corpus similar to expenditures for at least six months in order to pay daily expenses as well as other expenses in preparation for situations like these.
When it comes to setting aside money for a potential emergency situation, liquid funds are your best choice. When it is necessary, it is simple for you to redeem the units, and the money will be sent into your account the following business day. Because the rates are better than those offered by a savings account at a bank, you have the opportunity to build up a sizable corpus that will make it easier for you to weather the storm.
Let’s imagine why you’re an entrepreneur who is responsible for paying the monthly salaries of your employees at a rate of Rs. 5 lakh on the 5th of each month. Even if you leave this cash in a liquid fund for ten days, you will still get interested at the rate of seven percent. Do you have any idea where that may lead you in the next ten years? Investing in liquid funds may be an effective way to organize your spending and ensure that your money is never just sitting there doing nothing.
When an investor has a pressing need for funds, they are free to make a withdrawal. When investors have a surplus of cash on hand, they have the option of putting a significant portion of it into liquid funds. The type of investments made through liquid funds can be even more adaptable due to the absence of a predetermined minimum time frame for making investments in liquid funds.
Debt funds are considered low-risk funds since they are not connected to any particular market, yet, they are subject to interest rate risk. When kept for a longer length of time, debt funds are subject to higher levels of risk; however, liquid funds have a maturity term of only 91 days, making them among the safest alternatives available to investors. Because the underlying securities in liquid funds are short-term, the level of risk involved is quite low. In addition to this, they make investments in money market instruments with good ratings, which further lowers the risk levels.
Liquid funds are heavily protected debt products that offer flexibility in terms of exit options as well as rapid redemption of investment capital. Liquid funds are also known as money market funds. Along with this benefit, it ensures a consistent income for the investment. The income from such investments is often minimal in comparison to that of other securities. On the other hand, such returns are completely risk-free and nearly never subject to default. Therefore, we may come to the conclusion that liquid funds are a good choice for investors who have a limited stomach for risk or who wish to create a predictable income for a relatively short length of time.