Mutual Funds Day 27: Liquid Funds

We will discuss two categories of funds in this chapter

1. Overnight Funds
2. Liquid Funds

Overnight funds invest in schemes that mature in 1 business day whereas Liquid funds invest in instruments that have maturity up to 91 days. Do you remember, that we discussed savings & investments in Chapter 2?

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If you prefer to have an emergency fund or start a small savings program, then Liquid funds & overnight funds are the best-recommended categories.

There are three main reasons why

1. The value of the fund will not go negative as it is not linked to the equity markets.
2. You can withdraw the money on short notice, meaning the liquidity is very high.
3. The returns are higher than a normal savings account ensuring your capital is appreciating.

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If you do not have a savings plan or systematic investment plans, then the first choice would be to get hands-on experience in Liquid funds.

Having a savings plan and learning the financial discipline is a skill that will pay you off in the long run.

The major disadvantage of Liquid funds is the poor returns on investments. Since the investments are into high-credit quality instruments for a short period, the ROI will be around the usual fixed deposit rates.

Examples of Liquid funds

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