How Do Liquid Funds Give Better Return On Your Money Than Savings?

Everyone wants to grow money. This is why people try every investment option. Savings is the most popular alternative. It is the first place that people prefer to deposit their money. It is not considered an investment option since it offers bare minimum interest according to the amount and the tenure. Investing in other options can undoubtedly yield you a higher amount of interest, but it also comes with its pros and cons. However, at the same time, they can increase your profit manifold. Here we can talk about a promising option.

An option with less risk is always best

The risk is also higher if you seek higher returns, whereas the option that gives lower returns comes with low risk. Due to this fact, most of the consumers tend to stick to the traditional savings account method. They prefer it to grow their money at a low pace. However, there is certainly no harm in expecting a good number of returns from the savings account. Nevertheless, the question here is how.

The answer is liquid funds. It is a type of liquid fund used as a popular saving option with no or very low risk. With liquid funds, you get the feasibility to multiply your funds to get a comparatively good number of returns than the regular savings account.  Here is the detailed guide that explains liquid funds to grow your money.

About Liquid Funds

A liquid fund comes with the facility to withdraw the money without bearing any kind of charges. It is also done in a shorter time as compared to the other investment options. Here one can deposit the money even for a single day and withdraw it on next day without paying any penalty.

The withdrawal process takes a day, and the money gets credited directly into the bank account. Some of the funds offer 90% of the redemption on the same day while the balance is on the next day.

Generally, these funds invest the money into several deposit certificates, call money, and treasury bills along for the maturity period of up to 90 days. Since the investment period is short, they received comparatively lower interest. It is as cheap as the situation when you take out loans without a guarantor offered by a direct lender.

These funds are considered as less volatile and safest funds to invest in. The returns earned from these funds are certainly higher than the regular savings account. In this saving option, one does not need to pay any kind of prematurity withdrawal charges, unlike other deposit options.

When should you invest in Liquid Funds?

One can start investing in Liquid funds at any time. Most working professionals need to maintain a certain amount in their savings account towards their loans, house rent, etc. If you keep that amount in a savings account, it gives a minimum interest. On the other hand, if you move the same money to the liquid funds, it can certainly earn a good amount of interest.

One can transfer the amount right from the liquid funds to the savings account in just one day before the date of any kind of deduction. If one wants to buy a house, then he or she can save the funds in any of the liquid funds rather than the savings account. Here liquid funds can get better returns in a shorter period than the savings account.

If you are the one who loves to invest in equity, then you can park a certain amount in liquid funds. Then set the instructions to deduct the money systematically from the same account itself. This helps to grow the money in two different ways. Simultaneously one can also transfer the equity withdrawals right into the liquid funds to balance the losses.

A liquid fund is considered the best option to build up the emergency fund due to its structure of return and liquidity. Simply transfer a certain amount every month to the liquid fund and see the savings growing.  It is as easy as getting unsecured bad credit loans by direct lenders with the soft check. After all, everything in finance has to relate.

The taxation aspect of liquid funds

Liquid funds are considered debt funds. If one invests for more than 3 years, then it is considered a long-term investment. Hence you can expect the benefit in taxation if you consider investing for the long term. The taxation is applicable only for the short-term investment, which is less than 36 month 3 years.

Why should you choose liquid funds?

There are certain aspects for which one can choose to invest in liquid funds apart from the safety part. Investing in liquid funds gives you access to professionals who take care of the account. They manage the account as per their expertise. It is known as the best feature of liquid funds, especially if one does not have enough time to look after the investment or returns.

Another aspect for which one can choose to invest in liquid funds is the better post-tax returns. However, this is applicable only if you invest for a more extended period. Short-period investments are always taxable.

The third benefit that you get for investing in liquid funds is access to Unavailable debt securities. Generally, government securities always demand a higher amount for investment and offer a good amount of return. It may not be possible for the individual to put in such a large amount at a time. Mutual fund houses give you the flexibility to invest in government security and enjoy its returns.

The common risks of liquid fund investment

Similar to other investment options, Liquid funds come with a bit of risk, including the loss of principal amount. Hence one needs to be aware of all the aspects of liquid funds before investing in them. The risk factors can be the interest rate and the inflation risk.

To reduce risk, you can invest in a safer manner. Investing in Liquid funds is one of the simplest ways that one needs to follow. Several websites and applications available let you invest in liquid funds. Several mutual funds houses let you choose the funds and start with the desired amount. All you need to do is to sign up on any of the app or websites.

Conclusion

The above information should help you understand that liquid funds are among the promising alternatives to savings. They give a higher return and also provide a safer financial future. Take expert advice before investing money because knowledge is the best tool to do best in personal finances.

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