4 Reasons Why Rising Interest Rate Has Made Liquid Funds Attractive

In the dynamic landscape of financial investments, the Reserve Bank of India's move to privatize interest rates on savings accounts over two years ago set a new tone. Despite this, many Indian banks hover around a modest 4 percent interest rate on savings accounts. Even with some institutions offering higher rates, the catch lies in the substantial initial deposit they demand. Surprisingly, a significant chunk of our surplus funds still finds its way into these low-yield accounts, offering returns lower than the inflation rate. However, the game changes when we explore the world of the best liquid funds.

1. Investment in Security and Reliability

In a scenario where interest rates fluctuate, the risk associated with debt funds, including liquid funds, persists. The Net Asset Value (NAV) might show intermittent volatility. Safeguard your investment by delving into the fund's portfolio before taking the plunge.

2. Prepare Your Plans in Accordance with Your Requirements

Diversify your investment strategy with the best liquid funds offering various plans - growth plans, daily dividend plans, weekly dividend plans, and monthly dividend plans. Unlike growth plans, expansion plans don't pay dividends. Choose a plan aligning with your needs, balancing advantages and liquidity requirements. Direct plans, with their lower expense ratio, open avenues for retail investors, enhancing return on investment.

3. Having a High Level of Liquidity

Liquidity, the speed at which an asset converts to cash, characterizes liquid funds. Their high volatility notwithstanding, the redemption processing time is swift - one day plus T. If you redeem on Friday, the funds hit your account the next day, Saturday. Moreover, liquid money can be redeemed on the same day, with no minimum purchase requirement or lock-in period.

4. Superior Profitability

The allure of the best liquid funds lies in their ability to generate higher returns, surpassing traditional investments like fixed deposits or retirement funds. Retail investors increasingly favor these funds due to their high liquidity, providing a superior alternative to savings accounts. Returns on liquid funds consistently outshine other investment options.

Conclusion

For those with surplus cash, eyeing short-term investments that outperform traditional savings accounts, the best liquid funds beckon. Employing a systematic transfer strategy allows seamless movement of funds into equity funds (STP), maximizing returns and financial growth.

Frequently Asked Questions

What makes liquid funds more attractive than savings accounts?

Liquid funds offer higher returns and superior liquidity compared to savings accounts, making them an appealing choice for short-term investments.

How should investors choose the right plan within liquid funds?

Investors should align their plan with specific needs, considering factors such as growth plans, dividend plans, and liquidity requirements.

What is the redemption processing time for liquid funds?

Liquid funds boast swift redemption, with funds available within one day plus T, ensuring quick access to invested capital.

Are direct plans a better option for retail investors?

Yes, direct plans, with their reduced expense ratio, enhance the return on investment, making them a preferable choice for retail investors.

Can liquid funds be used for long-term investments?

While designed for short-term gains, liquid funds can be part of a strategy, such as systematic transfers, to move funds into long-term equity investments.