Liquid Funds
Liquid Funds can be defined as debt-oriented funds, which help to provide good returns with comparatively minimal risk. The investments made by liquid funds mature after ninety-one days. Liquid funds mainly offer security through savings. As a result, these funds engage in high money market assets. As a result, liquid mutual funds are known as being the safest type among various financial instruments available in the market.
Fixed Deposits
The most common kind of bank deposit is a fixed deposit. With the help of good investment against a predefined lengthy period, investors can gain significant interest that is obviously better than regular saving accounts would provide. Fixed deposit is offered by almost all financial houses including banks.
One can choose to either receive interest in a timely manner or at the end of the fixed deposit’s tenure. Fixed deposits are an option for investors who are inclined towards a guaranteed return rate.
Let us have a good look at the table of comparison between liquid funds and fixed deposits:
| Parameters | Liquid Funds | Fixed Deposits |
| Investment | Low investment | Relatively very high investment |
| Risk on investment | Medium risk involved | Low-risk involved |
| Return on investment | Slightly higher ROI | Comparatively lower ROI |
| Early withdrawals | Yes, one can make a withdrawal with low penalties imposed. | Yes, one can make a withdrawal with heavy penalties imposed. |
| Suitability | Short and long-term investors | Only long-term investors |
Before you begin investing, check now the tidbits of liquid funds.
Advantages of liquid funds
- Liquidity
First off, a liquid fund is one of the most flexible types of mutual funds due to its small lock-in periods. They have a higher level of liquidity. These are for you if you don’t bother with long-term investments yet don’t want to leave your money in a savings account.
- Monetary gains
When comparing liquid funds to fixed deposits, some mutual fund strategies also outperform FDs. Although it is conceivable, interest on the principal amount in a fixed deposit is frequently fixed. The fundamental doesn’t grow on its own. Your corpus grows when you invest in short-term liquid funds because of the capital gains and dividends you earn.
- Less volatile
Because the short-term liquid funds’ lock-in period is just up to 91 days, they are typically less volatile than other kinds of mutual funds.
- No exit load
You wouldn’t be required to pay an exit or entry load on your investment unless you withdraw your funds within seven days of investing.
- Greater rate of growth
With a lower-risk investment, these funds provide you with the possibility to experience faster gain rates. For instance, consider savings accounts. Your interest rate on a savings account is between 3 and 4 percent, while the return on investment for liquid mutual funds is between 6 and 7 percent.
Who Should Consider Investing in Liquid Funds?
When we compare mutual funds and liquid funds, the latter can be considered as a safer option. Investors who wish to avoid risk may consider liquid funds for this reason. Also, this type of fund is an amazing option when you compare it with a regular savings account since they offer higher returns. One may think about the investment of any type of profit that came from selling the securities or other assets they own.
Conclusion
Are liquid funds secure? This is a common question among investors. Although the answer may differ from person to person, these funds are a reasonably solid investment instrument given their high degree of liquidity and minimal risk. Since financial markets follow economic ups and downs, mutual fund programmes like liquid mutual funds also profit from any booms.
