Investing in Liquid Funds: How They Work

Posted On Friday, Sep 02, 2016

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Investment in mutual funds is becoming increasingly popular. The asset base of mutual funds surged to a record high of Rs. 15 lakh crore at the end of July 2016 primarily because of high inflows in liquid, income and equity funds.

The assets under management (AUM) of Mutual Funds increased 9.9 per cent in July 2016 to a record Rs. 15.18 lakh crore, said a Crisil compilation of data from the Association of Mutual Funds in India. This marks an absolute growth of Rs. 1.37 lakh crore in July 2016.

This rise may be attributed to the availability of a variety of funds. With this, selection of a suitable fund is a critical factor in investment decisions.

If you are planning to take the plunge into the world of mutual funds, we would like to highlight a category of funds that could be of interest to you - liquid funds.

Liquid funds are an integral part of the fixed income or debt investments family, primarily investing your money in money market instruments like certificate of deposits, treasury bills, commercial paper and term deposits having maturity upto 91 days. The lower maturity period of these underlying assets makes them liquid, which means they can be easily converted to cash at a short notice, with minimal risk on capital loss.


How it works

Liquid funds are one of the most suitable investment options for investors who prefer liquidity (immediate availability of cash) over returns. While, return on investment is always an important factor, liquidity takes priority in the case of liquid funds.

One of the most important benchmarks to evaluate the performance of such funds is the answer to the question "How liquid is the investment?" Or i.e. "How soon will I receive the money once I redeem?"

Categorization of mutual funds based on risk would put liquid funds at the bottom of the pyramid. From the SLR (safety, liquidity and returns) viewpoint, something about which Quantum Mutual Fund is very particular for Debt products, this category is considered the less risky and the most liquid in the industry.


Investment strategy

Liquid funds usually invest in debt and money market securities of very short maturity. The average maturity of these funds is generally less than 60 days. These instruments are not subject to interest rate volatility as against other debt funds with longer maturity periods. However, this does not entirely mean that they are immune to interest rate risks.


Rate of return

Investors prefer this fund over bank saving account because these funds have the potential to deliver higher returns. Indeed, mutual fund investment is subject to market risk and past performance is not a benchmark for the future trend, but overall return on investment in liquid funds is higher than the interest return offered on savings accounts at banks.

However, returns from liquid funds may decline with lower interest rates. Hence, they may not always deliver the expected returns, but this fund would give you guaranteed liquidity.


Why should you invest in Liquid Funds?


Low maturity period

Low risk of capital loss

Low expense ratio

Low volatility


The Quantum Liquid Fund

The portfolio of Quantum Liquid Fund is designed with the three objectives of Safety, Liquidity, and Returns - in that order - in an attempt to reduce credit risk. In other words, Quantum Liquid Fund is an open-ended liquid fund with the primary investment objective to provide optimal returns with low to moderate levels of risk and high liquidity through judicious investments in money market and debt instruments.


Quantum Liquid Fund currently invests only in Treasury bills, PSU banks' Commercial Deposits and AAA rated PSU Commercial Paper. These are all very liquid and low credit risk instruments and thus, their returns are slightly lower. Remember the old investment adage - the higher the risk, the higher the return? Vice versa also holds true - the lower the risk, the lower your returns. To know more about the performance of the Quantum Liquid Fund, Click here.

To conclude, return on investment is closely associated with the objectives of the investor, his/her risk taking capacity, and the overall economic and financial sector scenario. Investment in a liquid fund is advisable for investors who prefer are seeking liquidity with returns. Call us to know more, or write to us at [email protected] You can also consult your financial advisor for any investment related query.


Happy Investing!

Source - http://www.thehindubusinessline.com/markets/stock-markets/mfs-asset-base-crosses-15lakh-cr/article8964846.ece , www.moneycontrol.com

This fund is managed by Murthy Nagarajan. Click here for performance details of Quantum Dynamic Bond Fund managed by him.



Product Labeling


Name of the Scheme & Primary BenchmarkThis product is suitable for investors who are seeking*Risk-o-meter of Scheme
Quantum Liquid Fund

An Open Ended Liquid Scheme
• Income over the short term

• Investments in debt / money market instruments.
Quantum Liquid Fund
Investors understand that their principal will be at Low Risk

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Disclaimer, Statutory Details & Risk Factors:


The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.

Above article is authored by Quantum.

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