How to invest in liquid funds

Liquid funds are mutual funds that invest in debt and money market securities with a maturity of up to 91 days only. They are considered to carry relatively low/ low to moderate risk and can offer a relatively better return potential than a regular savings bank account. Liquid funds are often utilised by investors to park their surplus funds for a short period.

Step-by-step process to invest in liquid funds

Investing in liquid funds offers a straightforward way for investors to park their surplus funds while aiming for relatively stable returns. Here’s a step-by-step process to invest in liquid funds:

Identify a suitable platform: You can invest through distributors, or invest in liquid fund online platforms. Many Asset Management Companies (AMCs) provide a smooth, guided process for purchase through easy-to-use portals.

Register: Register on your chosen platform by providing your details. This would typically include PAN card, Aadhaar card for KYC verification, and bank details

Select the right fund: Explore the various liquid funds available, along with their respective returns and ratings, and choose one that aligns with your financial goals. There are various benefits of liquid funds and choosing a suitable scheme can help you inch closer to your financial goals.

Investment amount: Decide the amount you wish to invest. Liquid funds don't have a lock-in period, making it flexible for investors to redeem whenever they wish.

Purchase: Click on the 'invest' or 'buy' option to purchase the desired fund. Follow the prompts.

Start an SIP (optional): If you wish to invest regularly, set up a Systematic Investment Plan (SIP). It allows you to invest a fixed amount at regular intervals automatically.

Completion: Once the payment is processed, the units of the fund will be reflected in your account. You can track the performance of your investment in real time through the platform's dashboard.

Factors to consider before investing in liquid funds

Before investing in liquid funds, it's crucial to consider various factors to ensure they align with your financial goals and risk tolerance. These funds offer a low-risk investment option, primarily in short-term debt instruments, making them suitable for investors looking to mitigate the impact on capital with modest returns while maintaining liquidity.

Liquidity: One of the main reasons for choosing a liquid fund investment is its high liquidity. However, always check the average maturity period and the assets where the fund has invested to gauge its liquidity.

Investment horizon: Liquid funds are better suited for short-term goals or when you have some surplus cash that you might need soon. Their maturity period does not exceed 91 days.

Returns: While liquid funds might offer a relatively better return potential than a savings account, the risk associated is higher. Review past performance, but remember, past returns do not guarantee future performance.

Exit load: Liquid funds come with an exit load, which is a fee charged if you withdraw your investment within a specified period. Always check for any such conditions.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.