A standard savings account is no longer effective for handling your short-term savings. Although a savings account offers protection, its returns are low and fall short of inflation. The unsung stars of personal finance, the top 5 liquid funds, offer a better way of handling extra money.
A great option for low-interest savings accounts is liquid mutual funds. They make investments in short-term debt instruments, such as Treasury Bills, Certificates of Deposit, and Commercial Papers, which provide greater returns while keeping a degree of protection that allows easy access to your funds. In this post, we’ll look at how liquid funds can help you make the most of your spare cash and why they ought to be a key component of your financial plan.
The Difference Between Liquid Funds and Savings Accounts
Because of their security and liquidity, savings accounts are frequently considered the best choice for parking money. However, compared to the best flexible funds, which can provide returns of 6-7% annually, their yields—typically 3-4% annually—are significantly lower.
Liquid funds are unique because they mix better returns with safety. With a maximum term of 91 days, these funds invest in high-credit-quality debt instruments, ensuring the safety of your capital and the ability to access it whenever you need it—typically within a day.
How Do Liquid Mutual Funds Work?
Investors’ money is pooled and put in a varied array of short-term debt assets by liquid funds. Because these instruments are given by reputable organizations, the risk exposure of the funds is kept to a minimum. Professional fund managers constantly watch the portfolios, changing the stocks in response to market conditions to ensure the best possible returns.
When to Use Liquid Funds: A Smart Alternative to Idle Cash
Liquid funds can be used for a variety of reasons, although they are most commonly utilized as a disaster fund repository. For instance:
- Until you decide on a long-term investment decision, you could put a bonus, an inheritance or any other lump size in a liquid fund and make more money.
- Flexible funds should go towards short-term financial objectives, including a trip and down payment home. Getting a flexible fund means that you have the capacity to withdraw funds as and when you want and returns on such fund are better than on a savings account.
- Another excellent method for building an emergency fund is through flexible funds. In the event of an unexpected cost, you can easily access your money, but it will continue to grow in the background.
How to Start Investing in Liquid Funds
Investing in liquid funds is relatively simple:
- Find out how much of your money is idle and when you might need to access it.
- Seek out the top 5 liquid funds with a good track record, the best returns, and the lowest cost rates.
- Select your lump sum or SIP investment amount after starting an account with a trusted site.
- Keep an eye on your liquid fund’s success to make sure it keeps up with your goals.
Adding More Muscle to Your Portfolio: Best Focused Mutual Funds
Adding best focused mutual funds to your portfolio can greatly increase your long-term growth potential, even though liquid funds offer security and short-term returns. Focused mutual funds focus on 20–30 high-potential stocks, giving the chance of higher returns, in contrast to liquid funds, which favor safety and liquidity.
For people who want to grow their wealth over a longer period of time and have a higher risk tolerance, these funds are perfect. They are constantly managed, and fund managers fully investigate each stock, focused on high-growth industries or specific companies that have the potential to see substantial capital growth. You can build a well-rounded portfolio that hits a mix between growth and safety by carefully combining both liquid funds and best focused mutual funds.
Conclusion: Why Liquid Funds Are Essential for Your Financial Strategy
The top 5 liquid funds are a vital resource for any investor trying to better handle their short-term savings. They ensure liquidity and security while offering better returns than conventional savings accounts. Liquid funds offer a clever, useful way to store short-term extra money or build an emergency fund.
Additionally, you can achieve a mix between short-term security and long-term growth potential by matching liquid funds with best focused mutual funds. Your future self will enjoy it if you go beyond the savings account and use flexible funds to make your idle cash work harder for you.
ALSO Read: Choosing the Right Mutual Fund: Tips for Every Investor
