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Tips for investing in liquid funds: Most preferred practices and strategies

liquid fund investment for idle funds
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Meet Ravi, a young professional working diligently in a multinational company. Amidst the cacophony of the city, Ravi's mind often races to his financial goals – buying a car, a dream vacation, and securing his future. But with the rising cost of living and uncertain times, he's perplexed about where to park his surplus funds. This is where liquid funds step in, offering a relatively stable investment option for investors like Ravi. Here, we will educate you about the practices and strategies for investing in Liquid Funds. We will also highlight why the Bajaj Finserv Liquid Fund could be a suitable choice for your investment needs.

Table of contents

Understanding liquid funds

Liquid funds are a type of mutual fund scheme that caters to investors seeking short-term investment avenues with a touch of liquidity, and potentially stable returns. These funds invest in money market instruments such as Treasury Bills, Commercial Papers, Certificates of Deposit, and other short-term debt instruments, which typically have a maturity of up to 91 days. The primary objective of liquid funds is mitigating the impact of capital while generating reasonable returns.
Unlike traditional savings accounts or fixed deposits, liquid funds provide an opportunity for relatively better return potential while maintaining quick and easy access to funds. This becomes particularly beneficial for investors who wish to park their idle funds temporarily, for emergency funds or money set aside for upcoming expenses.

Things to consider before investing in liquid funds

Risk and return: While liquid funds are relatively low-risk investment options, they are not entirely risk-free. The returns are generally moderate, making them suitable for conservative investors who value low volatility over aggressive growth.
Expense ratio: : Liquid funds, like all mutual funds, come with an expense ratio that covers the fund's operating expenses. One should opt for funds with lower expense ratios, as higher expenses can eat into the overall returns over time.
Exit load: Liquid funds impose exit loads if you withdraw your investment before a specified period. It's crucial to be aware of these terms to avoid unexpected charges.

How to invest in liquid funds?

Investing in liquid funds involves a systematic approach that aligns with your financial goals and risk tolerance. Here's a step-by-step guide:

Step 1: Goal setting and risk assessment
Define your investment goals and risk tolerance. Liquid funds can be a good fit for short-term goals and emergency funds due to their liquidity and relative stability.

Step 2: Research and selection
Do thorough research on different liquid funds available in the market. Analyze factors such as portfolio composition, investment philosophy and credit quality. Opt for funds managed by credible asset management companies.

Step 3: KYC compliance
Ensure your Know Your Customer (KYC) compliance is up to date. This process involves submitting identity and address proofs and is mandatory for investing in mutual funds.

Step 4: Investment platform
Choose a reliable investment platform – it could be a distributor, mutual fund website, or a mobile app. These platforms make investing seamless and offer valuable insights into the fund’s performance.

Step 5: Investment amount and mode
Decide on the amount you want to invest and the mode of investment – lumpsum or systematic investment plan (SIP). SIPs in liquid funds can be particularly beneficial for automated savings and mitigating the impact of market volatility.

Step 6: Online application
If you decide to invest through an online portal, fill out the necessary forms and provide the required documents. The investment platform will guide you through the process, making it convenient and hassle-free.

Step 7: Monitor and review
Even though liquid funds are relatively stable, it's essential to keep an eye on your investments. Regularly review fund performance, portfolio changes, and macroeconomic trends that might impact the market.

Why trust Bajaj Finserv Liquid Fund for parking surplus funds?

Bajaj Finserv AMC has launched the Bajaj Finserv Liquid Fund along with other funds. The investment objective of Bajaj Finserv Liquid Fund is to provide a level of income consistent with the objectives of preservation of capital, lower risk and high liquidity through investments made primarily in money market and debt securities with maturity of up to 91 days only. There is no assurance that the investment objective of the Scheme will be achieved.
Having said that, it is highly advisable to seek an investment expert’s advice before investing in any scheme.
To conclude, with their emphasis on less volatility, liquidity, and relatively stable returns, liquid funds have become a favoured choice for short-term investments in the Indian context. For investors seeking a balance between risk and return, liquid funds offer a good avenue. However, it is prudent to seek expert advice before making any investment decisions.


How do I choose a suitable liquid fund for my investment?

Select a liquid fund from a reputable fund house with a consistent track record. Check for the investment philosophy, experience of the fund manager, and past performance to make an informed choice.

What is the ideal investment horizon for liquid funds?

Liquid funds are designed for short-term needs. They work well for parking surplus funds or for goals with a time frame of a few weeks to a few months.

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.