Importance of liquid funds in business expansion

liquid fund investment
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When it comes to starting and expanding a business venture, the effective management of finances is what determines growth and success. One financial instrument that stands out for its efficacy in this regard is the liquid fund. A liquid fund is a type of debt fund that invests in short-term debt instruments with a maturity of up to 91 days, including treasury bills, government securities, etc. These funds are known for their high liquidity, which means investors can quickly convert their investments into cash. This feature is particularly useful for businesses looking to expand, as it ensures ready availability of funds with minimal risk to the principal amount invested.

Let’s take a closer look at the role of liquid funds in business expansion.

  • Table of contents
  1. Benefits of liquid funds in business expansion
  2. Managing cash flow
  3. Minimising financial risks
  4. Bajaj Finserv Liquid Fund
  5. FAQ

Benefits of liquid funds in business expansion

Relatively less risky: Liquid funds are known for their low/low-to-moderate risk profile. They invest in high-quality, short-term market instruments, which are less susceptible to fluctuations due to the lower maturity period. This low risk feature is particularly beneficial for businesses in expansion mode, as it ensures relative stability in their investment.

High liquidity: One of the key features of liquid funds is their high liquidity. Businesses can withdraw their investments at short notice, often within 24 hours. This immediate access to funds is crucial for meeting unexpected expenses or seizing sudden market opportunities during expansion phases.

Flexibility: Liquid funds offer great flexibility. Businesses can choose the amount they wish to invest and can withdraw their funds subject to exit load. This flexibility allows for better financial management, especially given the unpredictable nature of business expansions.

Relative stability of principal amount: The prevention of erosion of the invested capital is a prime concern for businesses. Liquid funds, with their investment in low/low-to-moderate risk instruments, provide relative stability for the principal amount, making them a suitable option for businesses looking to expand.

Relatively stable returns: While liquid funds are not designed for high returns, they do offer modest gains. This is particularly appealing for businesses that prefer a steady growth in their investments, complementing their expansion efforts.

Managing cash flow

Effective cash flow management is important for any expanding business. Liquid fund investment can play a crucial role here. By parking surplus cash in liquid funds, businesses can earn potential returns while keeping the funds accessible. This strategy ensures that the business is never cash-strapped and can meet its short-term financial obligations without difficulty.

Additionally, the use of liquid funds as a part of cash flow management allows businesses to maintain a healthy balance between liquidity and investment. This balance is crucial during periods of growth, where cash flow needs can be unpredictable and often immediate. By having a portion of their assets in liquid funds, businesses can be assured of having a buffer that earns returns yet is available when the need arises. This approach helps in smoothing out cash flow cycles, particularly important during phases of rapid expansion or when dealing with seasonal fluctuations in business.

Minimising financial risks

Expanding a business involves various financial risks including market volatility and operational uncertainties. Liquid funds mitigate these risks by offering a relatively stable investment opportunity. Their short investment horizon and focus on high-credit-quality instruments reduce the exposure to market fluctuations, providing a cushion against financial instabilities during business expansion.

Bajaj Finserv Liquid Fund

If you are exploring how to expand business with liquid funds, an option for you to consider is the Bajaj Finserv Liquid Fund. This fund aims to provide a level of income consistent with the objectives of preservation of capital, lower risk, and high liquidity. The scheme invests primarily in money market and debt securities with maturity of up to 91 days only. The Bajaj Finserv Liquid Fund can be a reasonable choice for businesses looking to balance growth with financial stability. For a detailed scheme information, click here.

Conclusion

Liquid fund investments can be an invaluable tool for businesses aiming to expand. The blend of liquidity, relative stability, and flexibility makes them a suitable choice for managing finances during growth phases. By smartly utilising liquid funds, businesses can address the challenges of expansion with greater ease and confidence.

FAQs:

How can liquid funds contribute to business expansion?
Liquid funds offer high liquidity and relative stability, enabling businesses to access funds quickly for expansion activities while mitigating financial risks.

What are the potential risks associated with investing in liquid funds?
While generally low risk, liquid funds can be subject to credit risk and interest rate fluctuations. However, these risks are significantly lower compared to other investment options.

How can I assess the track record and performance of a liquid fund?
Evaluating a liquid fund’s performance involves examining its past returns, portfolio composition, credit quality of investments, and fund manager’s expertise.

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 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.