In India, liquid funds or liquid mutual funds are said to be the quintessential short-term opportunities in a real-time investor’s portfolio. To the ones who are regular customers of an investment market, they would agree that such funds appeal highly to them. This is mainly due to its potential of generating decent returns with minimal risk as compared to other investment schemes in the business. These funds provide you with a fixed interest as being part of the debt funds which also intend to provide liquidity and capital security to the investors.
The liquid funds are known to be less prone to interest rate fluctuations and therefore, provide safer as well as higher returns than traditional savings schemes provided by banks. The most common examples of liquid funds are commercial paper, treasury bills, short-term deposits, etc. You can click here to know more about the liquid funds.
Along with the other essential features that the investor considers before investing in liquid funds as mentioned above, its instant redemption facility certainly makes it to the checklist of the investors while adopting reasons to invest in these specified funds. Under this facility as provided by the Securities and Exchange Board of India (SEBI ) in its guidelines, an investor shall be allowed a withdrawal of the lower of ₹50,000 or about 90% of the invested value, per day under one scheme.
How Does the Redemption Facility in Liquid Funds Work?
To avail of the redemption facility provided by liquid funds schemes, the intended investor shall have to place a redemption request. After that, the next step will be to check the application of Net Asset Value i.e. NAV, this mainly depends on the time the redemption was placed.
This is because the NAV is checked based on cut-off time, if an investor has placed the redemption earlier than that of the required cutoff time then the NAV of the same day or the previous day shall apply, whichever may be lower.
However, if the redemption request was placed right after the required cut-off time then in that case, the NAV of the same day or next day shall apply, again, whichever is lower. The NAV is then calculated based on the underlying value of targeted securities which are then divided by the number of units of the requisite day.
Should an Investor Opt for this Facility?
Now the bigger question comes if you as an investor should or should not opt for the withdrawal facility? Well, let us consider the following points to draw a valid conclusion for the same.
- This facility curtails the time gap between the redemption request and the transfer of money in your account. It ensures instant money, once the request has been placed.
- This is the most accessible facility as it remains active on weekends and holidays too.
- Investors are provided with a sense of relief with this facility that their corpus can easily be withdrawn in case of emergencies. Therefore, adhering to the liquidity feature of such funds.
- There are no such additional charges to avail of this instant facility in the liquid funds as far as the conditions of the scheme are being applied.
- It is a one-stop solution for high returns as well as ease of withdrawals and therefore can be considered as an added advantage to liquid funds.
Considering the above points, the instant facility certainly appears to be a lucrative characteristic in the terms of the benefits of the liquid funds. However, an investor must keep in mind that these cannot compete with the instant and less complicated facilities provided in a savings bank account. But if you are someone who cannot afford to fall into high tax brackets, you can take this minimal risk that comes with such funds given that you have applied sheer knowledge and have done your homework before opting for such facilities or funds.
