Understanding liquidity and redemption process in liquid funds

Due to rising financial awareness, many individuals are interested in investing in mutual funds. However, they are hesitant because they feel that the mutual fund investment and redemption process is complicated. But believe it or not, liquid funds are now almost as easy to invest in and redeem as operating a savings account. For most investors, the short investment horizon, low-to-moderate risk level and low entry barrier make liquid funds more desirable than many other mutual fund products.

Let’s first look at what are liquid funds and who should invest in them, before we tell you how to invest and redeem them.

• Table of contents:

1. What are liquid funds?
2. Who should invest in liquid funds?
3. Why should you invest in liquid funds?
4. How to redeem liquid funds?
5. Why should you invest in Bajaj Finserv Liquid Fund?
6. How to invest in liquid fund with Bajaj Finserv AMC?

What are liquid funds?

Liquid funds are open-ended mutual fund schemes that invest in debt and money market instruments with a maturity period of up to 91 days. They are characterized by low risk and high liquidity. Many investors prefer liquid funds over parking surplus money in bank accounts since liquid funds typically offer potentially better returns than bank interest rates. However, unlike savings accounts, the returns from liquid funds are not fixed and are impacted by market volatility.

Who should invest in liquid funds?

The ease of investment, high liquidity, modest return potential and relative stability make liquid funds suitable for a wide range of investors – from individuals to corporations and institutions. They can also be used to work towards multiple goals. You can consider investing in liquid funds if:

• You have a low-risk, low to moderate risk appetite.
• You have a low-risk, low to moderate risk appetite.
• You are looking for investment options that offer high liquidity.
• You are looking to earn more than the interest rate applicable to a traditional bank account.
• You want to build an emergency fund.
• You want to build a corpus for a large investment.

Why should you invest in liquid funds?

Here are 3 reasons to invest in liquid funds:

1. High liquidity: As the name suggests, liquid funds offer high liquidity. This means that you can redeem them in one to two days making them a good alternative to savings bank accounts. Also, with instant redemption facility, you can redeem Rs. 50,000 or 90% of the invested amount, whichever is lesser, instantly.
2. Low Risk/Low to Moderate Risk: Liquid funds fall into the low-risk or low to moderate investment category since the underlying investments mature within 91 days. However, the short investment horizon, while mitigating the risk, also affects the returns from liquid funds.
3. Low Exit Load: Fund houses have a nominal exit load if the withdrawal is made within the first 7 days of the investment. After 7 days there is no exit load charged for redemption in liquid funds. You can find this information in the Scheme Information Documents (SID).

How to redeem liquid funds?

You need to put in a redemption request with your Asset Management Company (AMC) to redeem your money invested in liquid funds.

As per Securities and Exchange Board of India (SEBI) regulations, the liquid scheme offers instant-redemption facility, investors can instantly redeem up to Rs. 50,000 or 90% of the investment amount from liquid funds, whichever is lower, per day. The amount is transferred instantly via the IMPS facility into the linked bank account. For other withdrawal amounts, the redemption request is processed within one to two business days.

If the redemption request is placed before the cut-off time, then the closing NAV of the same business day is considered (From Monday to Thursday). Whereas, if the redemption request is placed before the cut-off time on a Friday, then the closing NAV of Sunday is taken into consideration.

Similarly, If the redemption request is placed on any day between Monday and Thursday before the cut-off time, and there’s a public holiday on the following day of placing the request, the NAV of the holiday is considered for calculation and the payout is done on the next business day.

In case the redemption request is placed after the cut-off time, then the closing NAV of the next business day is considered for calculation.

Why should you invest in Bajaj Finserv Liquid Fund?

Bajaj Finserv Liquid Fund can provide potentially better returns than traditional products by investing in the money market and debt instruments with a maturity period of up to 91 days. These liquid funds offer a low-to-moderate risk and high-liquidity investment option to investors to help them earn relatively better returns. You can invest in Bajaj Finserv Liquid Fund online with as little as Rs. 1000 and in multiples of Re 1 thereafter. However, the return from the fund is not fixed and is subject to market risk as compared with a Savings account where returns tend to be fixed in nature till it is changed. It is always advisable to consult a financial expert before making any investment decisions.

How to invest in liquid funds with Bajaj Finserv AMC?

You can invest in liquid funds either through a distributor or by visiting the official website. Follow these steps if you want to invest in Bajaj Finserv Liquid Fund online:
Step 1:Visit the Bajaj Finserv AMC website and navigate to ‘Liquid Fund’ in the ‘Products’ dropdown.
Step 2: Select the applicable button for the compliance declaration.
Step 3: Enter your PAN and sign-up with your mobile number and email.
Step 4: Choose your investment amount and horizon.
Step 5: Furnish the KYC details.
Step 6: Complete the payment.

In conclusion, liquid funds are a combination of ‘low risk/low to moderate risk-high liquidity’ investment options that offer relatively better returns than savings bank accounts, at a higher risk than savings account. A liquid fund is also an appropriate way to create an emergency fund, save for a vacation or build a corpus for a larger investment. Anyone new to mutual funds can get started with liquid funds and slowly transition into the more desirable but usually volatile equity funds. You can also use an SIP calculator online to estimate your returns from systematic investments, which will help you plan your financial goals more effectively. You can easily access your money invested in liquid funds because of insta-redemption regulations. To enhance your financial planning, consider using a compound calculator to estimate the potential growth of your investments over time. For wealth creation over the long term, also consider investing in other mutual fund categories. A lumpsum mutual fund calculator can help you estimate the potential returns of lumpsum investments in different types of investment avenues based on your invested amount, tenure and expected returns.

FAQs

What is a fund's liquidity?

A fund's liquidity may be defined as how quickly an asset can be turned into cash. Highly liquid, liquid money can be redeemed instantly with the help of insta-redemption facility.

What benefits may you expect from investing in liquid funds?

Investing in liquid funds has several benefits, including high liquidity, relatively low risk/low to moderate risk, and a speedy redemption procedure.

How do I pick a reliable liquid fund?

You should take into account aspects like expense ratio and the fund manager's expertise when selecting a good liquid fund.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.