How can you make idle cash work harder? Consider liquid mutual funds

Liquid mutual funds: Many people keep surplus funds in savings accounts for their convenience, ready access for daily expenses and bill payments. However, with interest rates usually ranging from 3.50 per cent to 4 per cent, these accounts often fail to outpace inflation, making your money less productive.

Experts suggest considering liquid mutual funds. These funds invest in short-term money market instruments like treasury bills, certificates of deposit, and commercial papers, with maturities of up to 91 days. They offer better returns compared to traditional savings accounts, all while ensuring high liquidity and safety.

Why liquid funds stand out

Quick access

Liquid funds offer significant flexibility. There’s no exit load, and withdrawals can be made partially or fully without penalties. Most transactions are processed within 24 hours on business days.

Safe investments

Liquid funds focus on highly rated money market instruments, ensuring minimal risk and safety for your capital.

Better returns

On average, liquid funds offer returns 2–4 percentage points higher than savings accounts. For instance, if you have a large sum, such as Rs 10 lakh, sitting idle in your savings account, switching to liquid funds could yield an additional Rs 20,000 to Rs 40,000 annually. This extra income might seem modest but can be significant over time, and investing regularly can cultivate a productive financial habit.

Fast transactions

Some mutual funds provide instant redemption options, with funds credited to your account within minutes through the AMC portal or app.

Here are the top 5 liquid mutual funds based on Groww data:

Aditya Birla Sun Life Liquid Fund Direct Growth

• Type: Debt, Liquid
• Risk: Moderate
• Annualised Return: 6 per cent

Quant Liquid Direct Fund Growth

• Type: Debt, Liquid
• Risk: Low to Moderate
• Annualised Return: 5.99 per cent

Parag Parikh Liquid Fund Direct Growth

• Type: Debt, Liquid
• Risk: Low to Moderate
• Annualised Return: 5.62 per cent

LIC MF Liquid Fund Direct Growth

• Type: Debt, Liquid
• Risk: Low to Moderate
• Annualised Return: 5.93 per cent

ICICI Prudential Liquid Fund Direct Plan Growth

• Type: Debt, Liquid
• Risk: Moderate
• Annualised Return: 5.92 per cent

Who should invest in liquid mutual funds?

Conservative investors: Those seeking low-risk investments with stable returns and minimal fluctuations in value.

Short-term savers: Individuals needing easy access to their money within a short period, such as for upcoming expenses or emergencies.

Emergency fund holders: People looking to keep an emergency fund that earns better returns than a traditional savings account while remaining highly liquid.

Investors with idle cash: Those with substantial cash reserves that are not immediately needed and want to earn a higher return without long-term commitment.

Cash flow managers: Investors who frequently receive large, temporary cash inflows, such as bonuses or maturing investments, and want to park these funds temporarily for better returns.