Are you making an allowance for investment option that do not have a security device in period and still can give way comparatively high returns? Liquid funds might be the right investment alternative. Let us understand what liquid funds actually are, its growth rates, current trends and advantages of having it in our investment portfolio.
Understanding liquid funds
Mutual funds that have an utmost maturity period of 91 days; that is what liquid funds are! Giving you the reimbursement of a no lock- in period, this money is supposed to be less risky due to the short investment period. As the main objective of this kind of investment is unspoken to be earning returns the length of with easy liquidity of investment, there is usually a nominal or nil exit-load associated.
What do liquid funds do?
As begin, investing in liquid funds is an option to uphold lump sum money in your savings bank account. While savings accounts offer an interest rate between 4-6% p.a., liquid funds on an usual give at least 1.5% more returns on investment.
Liquid funds are not devoid of taxes. However, you can manage your funds to plan taxes professionally. Though taxes are appropriate to the gains on these investments made for less than three years, the dividends from liquid funds are free of taxes. Reinvestment of dividends in liquid funds is treated as fresh investment and thus the gain computation will be comparatively low. This makes it a appropriate option than bank deposits that bring upon you taxes on interests towards savings account or fixed deposit holdings.
Is liquid fund a perfect alternative of investment?
The reply is yes! Liquid funds can help investors in the higher tax bracket make better return; about 5%more than savings accounts at the bank. The risks connected with liquid funds are also less when compared to other group of mutual funds.
When should you think investing in liquid funds?
• When you are saving towards a short term objective.
• When you have lump sum capital and wish for to expand investments.
• When you want to put aside capital for unforeseen event purposes, yet increase returns over a short period of time.
• When you are ready to generate an account and plan a systematic investment plan to larger investment schemes.

Author's Bio: 

Finheal is writing blogs and articles on finance category.