All you need to know about liquid funds

What is a liquid fund

Liquid fund is a category of mutual fund which invests primarily in money market instruments like certificate of deposits, treasury bills, commercial papers and term deposits. As the maximum maturity of all such underlying instruments is 91 days, the average maturity of Liquid Funds will always be less than 91 days. In case of these lower maturity period of these underlying assets helps a fund manager in meeting the redemption demand from investors. You can get some help from wealth management company.

How to choose a liquid fund

The returns from liquid funds don’t vary much as they invest in similar underlying securities. However, when looking for a liquid fund, the past return should not be the only factor for consideration. Other factors like size of the fund, credit quality of underlying securities and track record of the fund house should also be kept in mind.

Type of liquid fund

There are different plans like growth plans, daily dividend plan, weekly dividend plans and monthly dividend plans are available in the Indian market. Growth plans don’t declare any dividend, and appreciation of fund is reflected in higher unit value. Investors can choose their plan as per their convenience and liquidity needs. Retail investors can also invest in direct plans as they have a lower expense ratio which helps in getting a higher return.

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