What are Liquid Mutual Funds?

  Author: Kundan Kishore

Contrary to the misconception many investors have, mutual funds are not just all about investing in equities through equity funds. You also have other mutual funds which invest your money in lower risk investments and consequently provide a lower return. Liquid mutual fund or liquid funds as they are popularly known, is one such category.

Short term investment Liquid mutual funds are offered by mutual funds and can be quite useful for certain purposes. If you want to invest for less than one year, invest in liquid mutual funds. They are a category of mutual funds that invest your money in debt investments, very near to their maturity. As a result they generate steady returns and are very likely to preserve your principal amount.

Liquid and largely secure Liquid funds are typically useful in parking money that you might need at a short notice. Experts suggest that you earmark money worth 3-6 months of expenses for emergencies or an emergency fund, and imminent expenses. A part of this money can be invested in liquid funds along with other options such as bank savings account and savings account-cum-fixed deposits. Liquid funds typically offer higher returns than bank savings accounts and hence, are worthy of your consideration.

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