Liquid funds are a type of mutual fund that invests in fixed-income instruments with a short maturity period. They are considered the safest mutual fund category due to their extremely low lending duration. The return of a liquid fund depends on the market price of the securities held by the fund, and there is no guarantee of any return or principal. Liquid funds are an efficient financial instrument to invest or park money for a short span of time that may be needed in a few weeks or months. Investors can get their withdrawals processed within 24 hours.
The net asset value or NAV of a liquid fund is calculated for 365 days. They are an ideal investment option for those who want to earn returns that are higher than savings accounts but do not want to take risks associated with other mutual funds. Additionally, they are also a good option for investors who want to park their money for a short period of time, typically less than a year.
Investing in liquid funds is easy and can be done online through various mutual fund investment platforms. Liquid funds are also tax-efficient as they are subject to short-term capital gains tax, which is lower than long-term capital gains tax. However, investors should note that liquid funds are not risk-free and are subject to market risks. Investors should also check the credit rating of the securities held by the fund before investing.
In conclusion, liquid funds are a safe and efficient investment option for those who want to earn returns that are higher than savings accounts but do not want to take risks associated with other mutual funds. They are ideal for investors who want to park their money for a short period of time and can be easily invested online. However, investors should note that liquid funds are not risk-free and are subject to market risks.
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