Liquid Plus Funds Vs Savings Bank

Posted By: Admin

There seems to be a popular perception that Liquid Funds / Liquid Plus funds are instruments for corporates and institutions to use, I beg to differ. Even individuals with small surpluses can use these for very short term parking to great advantage. Since they offer quick liquidity ( 24hours), it is possible to liquidate them for one’s emergency needs as well. Since the minimum investments start as low as Rs 5000 onwards, they can be effective savings tool till one identifies the appropriate investment opportunity. Ways to use the Liquid Plus funds for individuals :

It is a temporary parking space for funds designed for moneys needed say in a 15 days to a month’s time where the duration of the event is still uncertain. Like funds kept for buying a property or a substantial asset ;
To start a savings habit with uncertain cashflows, since the pandemic has induced a little uncertainty in monthly cashflows, Liquid Plus funds can be used to park funds to create a short term emergency funds for short term needs;
Since the equity markets are volatile, it is may not be appropriate to invest lumpsum at one go, so it makes sense to invest the same in liquid plus funds and then do a systematic transfer to equity funds, not only do you average your equity purchase to avoid negative returns due to the volatile nature of equity markets, but also you earn a little return on your liquid plus funds.

These days the returns are dwindling on the back of low bank interest and even lower savings bank interest. In times like these we need relook at our savings habit and make use the best opportunities without substantial risks.

A Saving of a mere Rs 25,000 in a liquid plus fund would generate an additional income of Rs 500 over the SB rate on an annual basis. So think about it the next time you see more than a few thousands in your savings account. Is your objective to make your bank grow rich or for you to grow wealthy ?

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Category Finsherpa | Tags Financial Freedom