Liquid funds are among one of the safest investment options in the mutual fund market. People who previously used to invest in FDs and RDs are slowly shifting toward these schemes and the main reasons behind that are the difference in returns that these schemes have and the low-risk factor associated with them. In this post, we are going to discuss this category and will have a look at the performance these schemes have shown over the years.
What Are they?
Liquid funds are mutual fund schemes that fall in the debt category. These schemes share a common objective of providing moderate returns with low risk and high liquidity by investing in a mix of short-term debt and money market instruments. In simple terms, these are the funds in which you can invest your amount for short period of time without worrying about lock-in period or exit load charges. Liquid mutual funds invest mainly in debt instruments which have a maximum maturity of 91 days. These funds are one of the safest investment options available today as they invest only in high rating instruments. As for the liquidity factor, you can redeem your investment after 24 hours of allotment of units and the amount will be transferred to your bank account within a single day. Some AMCs (eg. Reliance Mutual Fund) have also provided investors with debit cards through which investors can redeem their money instantly. Some of the top performing schemes from this category are Reliance Liquid Fund, Aditya Birla Sun Life Liquid Fund, and ICICI Prudential Liquid Fund. To see other top performing liquid funds, you can visit MySIPonline.
Performance Analysis
Liquid funds have been providing consistent returns over the years. The average trailing returns given by the category in 1, 3, and 5 years are 6.86%, 7.29%, and 8.03%, respectively (as on Jul 06, 2018). These schemes showed a drop between Jun 2009 and Jun 2010 but recovered from it soon.
Risk Associated
Liquid Mutual Funds are the least risky, but not risk-free. As we know that it invests in debt instruments like bonds, debentures, FDs, etc., with a maturity period of 60 to 91 days. Now, let's say an instrument fails to pay up the interest even after the maturity is over, in that case, the ratings and market price of the instrument drop will also affect the NAV of the associated scheme. But this thing is highly unlikely to happen as most of the instruments are sponsored by government and top-notch brands. Other than this there is no particular risk involved. So investors who are new to mutual market can also consider investing in these schemes, without worrying about losing their principal amount.
With the above information, now you have the idea of what liquid mutual funds are and what kind of returns you can expect from such schemes. So if you are the kind of investor who wants to play safely in the mutual fund market and is looking for short-term investment, then liquid funds are what you need. For making investments in liquid mutual funds, you can visit MySIPonline and can enjoy our hassle-free process.
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