Liquid Mutual Fund: Is this the best short-term investment option?

Most of the times we plan only for long-term investment, ignoring our short-term necessities. However, investors are advised to keep some liquid funds to tide over an unforeseen financial crisis that may come in the short run. There are several options for parking money for emergency use. Popular among them are savings accounts and liquid mutual funds. Besides these, there are also options like recurring deposits and short-term fixed deposit. 

Experts suggest that liquid mutual funds could be one of the best investment options for short-term needs as these are low-risk and give slightly higher returns than savings bank accounts and fixed deposits. There is also no entry and exit loads for taking out money from these funds.

Jitendra Solanki, a SEBI-registered investment expert, told Zee Business Online, "Liquid mutual funds are the best short-term investment option as these are market-linked and there are possibilities that these funds may give higher returns. Though bank FDs give almost the same return, they come with lock-in period. If the investors take out money prematurely then banks charge penalty. On the other hand, liquid mutual funds do not have any entry or exit loads. Anytime investors can withdraw money."

Mumbai-based tax and investment expert Balwant Jain said, "Though the interest rate on short-term fixed deposit or FD is almost same as liquid mutual funds, the latter is more liquid and one can withdraw money anytime without attracting any penalty. On the other hand, FD attracts a penalty if one pulls out money in an emergency before maturity. Besides that, liquid mutual funds give slightly higher returns than FD though very nominal. Therefore, liquid mutual funds are the best avenue to park money for an emergency."

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Kartik Jhaveri, Director, Wealth Management at Transcent Consultants, said, "Liquid mutual funds are the most liquid investment options as the investors can take out money whenever they wish."

Jhaveri further said that banks also pay almost the same rate on savings bank account deposits. However, liquid mutual funds in most of the time give slightly better returns. If you talk about short-term FD, investors need to pay penalty if they withdraw money prematurely. "Liquidity is the best thing in this instrument. Therefore, one can adopt this as a short-term investment avenue," he said.