Parking your excess money in your savings account will not give you reasonable returns. An alternative is to put them in the money market or liquid mutual funds. Here are the basics of liquid mutual funds you need to know before investing. When you have excess cash in your bank savings account, you earn anywhere between 1%-3.5% interest per annum. However, there’s a more innovative way to earn more interest in your savings. You could invest in the money market or liquid mutual funds to make the best of the extra cash that you have. Money market mutual funds, also called liquid mutual funds, invest in short-term financial securities that mature one year or less. They invest in short-term government securities, commercial papers, certificates of deposit, repurchase agreements and even cash and cash equivalents. These funds are highly liquid, meaning you can sell them at any time to recoup your investment. And they provide a rate of return that is greater than savings account interest rates. Features of Money Market Mutual Funds • Money market mutual funds or liquid mutual funds invest in top-rated securities with one year or less maturity. • They are highly liquid investments that can provide a higher return rate than savings accounts.
• Money market mutual funds are suitable investments if you have a short-term investment horizon. If your investment horizon is over a year, it is best not to invest in these funds. • Money market funds are primarily used to generate returns in the short term and are not ideal for long-term investment purposes like retirement planning. • They are considered relatively safe investment avenues because they invest only in top-rated securities and have a short investment horizon. • They provide good diversification to your investment portfolio in the short term. • They are taxed as debt instruments. Just like other mutual funds, you have to bear an expense ratio. It is always advisable to look for a fund with a minor expense ratio to maximise your returns. Instead of holding the cash in your savings account, you can invest your surplus money in the money market or liquid mutual funds. Money market funds are ideal if you have an investment horizon of 3 months to a year. If you are confused about how much to invest in these funds or want to know the best money market funds to invest in, then you seek advice from your financial planner to come up with the best investment plan for you.
