How to Invest in Liquid Mutual Funds?

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  • 21 Dec 2023
How to Invest in Liquid Mutual Funds?

Liquid mutual funds are a category of debt funds that invest in fixed-income instruments maturing in 91 days. These fixed-income instruments could be government securities, treasury bills, etc.

The process of investing in liquid mutual funds is fairly simple. It involves:

Choosing a Reputed Fund House

The first step is to select a trustworthy fund house. Opt for a fund house with a strong track record in managing funds. Researching the fund house’s reputation, performance, and customer service is essential.

Ensure to Complete Your KYC Process

If you are a first-time investor, you must complete the KYC process. This entails submitting your identity proof, address proof, and a passport-sized photograph to the fund house or a KYC registration agency. Many fund houses allow you to complete this process online for convenience. KYC is essential as per the Prevention of Money Laundering Act 2002.

Select the Right Fund

Once your KYC is in order, it’s time to choose the liquid fund you want to invest in. Look for funds with a strong history of consistent returns. Liquid funds are ideal for short-term goals and maintaining an emergency fund. Make sure to assess your own investment goals and risk tolerance when selecting a fund.

Choose If You Want to Invest Via SIP or Lumpsum

Once you’ve chosen your desired fund, decide whether you want to invest via a systematic investment plan (SIP) or make a lump sum investment. While in the former, you invest a fixed amount of money at predetermined intervals, the latter entails you invest a large sum in one go.

SIPs are particularly useful for individuals with stable cash flows. On the other hand, a lump sum investment can be advantageous when you have a considerable amount of surplus funds available.

You can invest in liquid mutual funds through both online and offline modes. Online platforms like the fund house’s website, mobile apps, or third-party mutual fund platforms make the process quick and convenient. For offline investments, you can visit the nearest branch of the chosen fund house and fill out the investment application form.

Whether online or offline, you must complete the application form with your personal and investment details. You will also need to specify the investment amount you want to invest. The amount from your bank account gets deducted and invested in the fund.

In case of investment via SIP, the fixed amount gets deducted and invested in the fund on the date and the frequency opted for, which could be weekly, fortnightly, or monthly.

In Conclusion

Prudent investment in liquid funds can help you build an emergency corpus and earn more than what you get from a savings account. With Kotak Securities, you can invest in an array of mutual funds, including liquid funds, and begin your journey towards financial growth and security.

FAQs on How to Invest in Liquid Mutual Funds

You can use liquid funds to park your money for short periods, usually 1 to 3 months.

Yes, you can withdraw money anytime you need. Redemption request is processed within T+1 working day.

While liquid mutual funds are a category of debt funds, relatively safer than equity funds, they carry some risk. Liquid funds are subject to credit and interest rate risks, among others.

Liquid funds invest in fixed-income securities, such as certificates of deposit, treasury bills, commercial papers, and other debt securities that mature within 91 days.

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