Liquid Funds: Ideal Parking Grounds for your Surplus?

Investors across the country are constantly wondering which would be a better investment instrument for them to deposit their funds in, so as to meet their financial objectives and goals. The Indian Stock market is known for having a variety of investment options to choose from, but how is each one different from the other? How does an investor know which would be a better financial instrument where their funds can be stored?

While many people have a large portion of their savings stored in a savings bank account, there are plenty of other options which are available to investors. They not only can store their money in these instruments, but can also reap plenty of lucrative benefits. One of the most important factors an investor pays attention to before investing is how quickly he/she can get access to his/her funds. Known for their high returns, liquidfunds are debt instruments, which are known to offer a high level of liquidity.

Liquidity essentially refers to the availability of liquid assets to a company, market or a person. In short, it refers to how quickly an investor can access his/her money. So, wouldn’t that be a good thing? This is after taking into considering how difficult it is to access money through other financial instruments such as mutual funds, commodities, bonds, shares, etc. Moreover, it is especially useful for conducting various trading activities. In short, liquid assets refer to those assets which are used in a trading transaction and can easily be bought and sold in the market.

Investing in these assets is also considered to be an extremely safe option for investors, as they can easily withdraw their funds from the investment at any time that they want to. If the investor anticipates an upwards direction in the interest rates, the money can be invested in an asset, right until the time that the interest rate increases. Once it has risen, the money can be withdrawn from the fund.

Liquid fund schemes are especially popular in Systematic Transfer Plan (STPs). These schemes help the investor to move their investments from liquid (and other debt) and equity schemes to the market scenario. They are also popular during the retirement phase, when a retired person prefers to have a good amount of money in liquid format.