In time of need, this fund can come to rescue

A lot of people know about fixed deposits and use it as a saving tool. They save money for 1 year, 2 years, 5 years, or 10 years through FDs. But people are not well aware of liquid mutual funds which can come in handy in times of emergency. So let’s understand what liquid mutual funds are. Liquid funds come under debt mutual funds. They invest in debt instruments and money market securities maturing in 7 to 91 days. There is no lock-in period for liquid funds. This means after one week, you can easily withdraw money.

Anyone can require money in times of need. As per Scripbox report of october 2022, Indians were willing to increase their savings and started making emergency funds for a rainy day. But where should you put your emergency fund? In bank FDs or in liquid mutual funds? Even seasoned investors get confused about it. After RBI’s sustained rate hikes, returns of FDs have also increased. On the other hand, mutual funds are as there are investment options for all kinds of investors.

For, a one-time lump sum investment FD is a good alternative. But you have to keep in mind that there is a lock-in period in FD, and for that period you cannot withdraw the amount without incurring a penalty. Hence it reduces your return. On the other hand, there is no lock-in period in liquid funds. Which means it is very easy to withdraw money from them.

Given the short-term nature of these securities, liquid funds are least risky in debt mutual funds. In this, you get a refund in just one working day or in 24 hours. Most of the liquid funds allow each person to withdraw at max Rs 50,000 from each scheme in a day. Various mutual funds also provide ATM cards to withdraw money from liquid funds.

So if someone has excess money, and they want to get a fixed return, then they can invest in FDs ranging from 7 days to 10 years. If you want a higher return then you can invest in long-term FD.

But if you are an investor who always wants to keep some liquid money for emergencies, then your 1st priority would be the flexibility of the investment scheme. Meaning how easily you can withdraw your money from the scheme.

If we compare a liquid fund with FD, then it’s clear that both have their pros and cons. Liquid funds are very liquid and accessible, means they allow you to easily withdraw money. On the other hand, FD provides you fixed return after a fixed interval. Now each person can invest as per the needs. Liquid funds are best for such investors that are willing to take low to medium risk.

On the other hand, FD is good for such investors that are not willing to take any kind of risk.

So, an investor has to look at his goal and then make investment accordingly. Your portfolio should fit your investment horizon and goal. Based on that you should invest in FD and liquid funds. Experts also suggest that if you have to make emergency fund for short term, then its better to invest in liquid fund.