How to choose a suitable liquid fund for investment?

Many investors seek avenues to park surplus funds while maintaining liquidity and earning reasonable returns. In such scenarios, liquid funds emerge as a suitable option due to their low/low-to-moderate risk profile and potential for returns. However, understanding how to select an appropriate liquid fund investment is crucial for optimising investments.

This article explores the nuances of liquid fund investments, considerations for choosing them, and sheds light on the Bajaj Finserv Liquid Fund as a viable investment choice.

• Table of contents

1. What are liquid funds?
2. How to choose a liquid fund for investment?
3. Understanding Bajaj Finserv Liquid Fund

What are liquid funds?

Liquid funds belong to the category of mutual funds that primarily invest in short-term debt instruments. Investments are made in treasury bills, certificates of deposit, commercial papers, and other money market instruments with a maturity of up to 91 days. Thus, liquid funds offer high liquidity and a relatively stable return potential compared to other debt funds due to their short-term nature.

How to choose a liquid fund for investment?

Fund objective and strategy

Evaluate the fund's objective and investment strategy. Ensure it resonates with your investment objectives, risk appetite, and liquidity goals. Choose a fund that prioritises these goals.

Credit quality and portfolio composition

Assess the credit quality of the fund's portfolio. Look for a well-diversified portfolio with a significant proportion of highly rated securities. A portfolio comprising high-quality assets minimises credit risk.

Expense ratio

Consider the fund's expense ratio. Lower expenses generally result in higher net returns for investors. Compare the expense ratio with peer funds to ensure it remains competitive while maintaining quality.

Historical performance and returns

Review the fund's historical performance to gauge consistency in delivering returns. Past performance offers insights into the fund manager's expertise and the fund's ability to navigate different market conditions. However, it must be noted that past performance may or may not be sustained in the future.

Liquidity and redemption process

Understand the fund's liquidity and redemption process. Assess how quickly funds can be redeemed and credited to your account. Opt for funds offering hassle-free and swift redemption processes.

The reputation of the fund house

Consider the reputation and credibility of the fund house managing the liquid fund. A well-established and reputable fund house is often associated with better management practices and reliability.

Regulatory compliance and transparency

Ensure the fund complies with regulatory norms and follows transparent practices. A fund with clear disclosure and compliance measures inspires investor confidence.

Investor services and support

Evaluate the investor services and support provided by the fund house. Access to customer service and support for queries and concerns is crucial for a smooth investment experience.

Read More: How to invest in liquid funds?

Understanding Bajaj Finserv Liquid Fund

Bajaj Finserv AMC offers the Bajaj Finserv Liquid Fund, designed to provide a level of income consistent with the objectives of capital preservation, lower risk, and high liquidity. This fund primarily invests in money market and debt securities with a maturity of up to 91 days. By leveraging its investment strategy, the Bajaj Finserv Liquid Fund aims to maintain a balance between stability, liquidity, and potentially stable returns for investors. It is advisable to seek expert advice before investing in any scheme. For a detailed scheme information, visit the scheme page.

Conclusion

Choosing a suitable liquid fund investment involves a comprehensive evaluation of the fund's objective, portfolio quality, expense ratio, historical performance, and liquidity. The Bajaj Finserv Liquid Fund offers investors an opportunity to achieve wealth creation, lower risk, and high liquidity through its investment strategy focused on short-term debt instruments. Moreover, using a Compound Interest Calculator can help you understand how your investment may grow over time. By entering the principal amount and interest rate, the calculator can provide projections to assist you in making well-informed investment decisions.

FAQs:

Are liquid funds risk-free?

Liquid funds are relatively low/low-to-moderate risk investments compared to other mutual fund categories due to their investments in short-term securities. However, they are not entirely risk-free. There's minimal credit risk, but interest rate risk and market fluctuations can impact returns.

How much money should I invest in liquid funds?
It is advisable to keep a portion of your emergency funds or short-term savings in liquid funds for easy access and relative stability.

Is Bajaj Finserv Liquid Fund worth investing in?

Bajaj Finserv AMC offers the Bajaj Finserv Liquid Fund, designed to provide a level of income consistent with the objectives of capital preservation, lower risk, and high liquidity. By leveraging its investment strategy, the Bajaj Finserv Liquid Fund aims to maintain a balance between relative stability, liquidity, and potentially consistent returns for investors.

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.