Introduction: A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.
Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund. Mutual funds invest in a vast number of securities, and performance is usually tracked as the change in the total market cap of the fund—derived by the aggregating performance of the underlying investments.
TOPIC of the Video:
Liquid funds are a type of mutual funds that invest in securities with a residual maturity of up to 91 days. Assets invested are not tied up for a long time as liquid funds do not have a lock-in period.
Return is not guaranteed as the performance of a fund depends upon how the market performs, unlike fixed deposits which are not dependant on the market. An investor looking for better returns prefers investing in a liquid fund over a fixed deposit.
Description of the Video:
Liquid funds are short-termed income schemes that invest in money market instruments such as government securities, treasury bills among others. If you have idle money in your account, it is best to invest it in a liquid fund for short time periods.
Let us take an example, if you have to save for your son’s school fees due quarterly this is a good investment. Stock markets or equity funds are too risky a proposition for these important payments whereas bank fixed deposits will lock in your money for a long period and the returns will be low. Therefore, liquids funds are a good bet.
Liquid funds word for a dedicated fund for emergencies. The investor will also earn better than bank deposits. Many equity investors also use liquid funds to scatter their investments into equity mutual funds using the systematic transfer plan (STP), they believe this will get higher returns.
Financial advisors look at liquid funds to carry the lowest risk as well as least volatility in the category of mutual funds. This happens because people generally invest in instruments with high credit rating. The net asset value of these funds sees a change to the extent of interest income accrued, including on weekends.
PROS AND CONS OF INVESTING IN LIQUID FUNDS:
Pros-
No lock-in period
Withdrawals can be processed in 24 hours
No exit load
Taxation benefits
Cons-
In a savings bank account, investments of up to Rs. 1 lakh are covered under deposit insurance. No such feature is available with Liquid Funds.
YOU SHOULD THINK OF MUTUAL FUNDS IF YOU:
-Want to create a dedicated fund for emergencies
-Have idle money to invest
-Are looking to earn better than what you do from bank deposits, keeping in mind the fact that both are highly liquid in nature
-Prefer short-term exposure
-Prefer the highest liquidity with the least risk
To summarise, liquid funds are a good platform to invest that would otherwise stay idle in an account. They work well for an investor as they offer reasonable returns, and seek the convenience of liquidity over a short term like any regular account.
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