There are certain factors which need to be considered before parking your money in these most frequently invested mutual funds in India.
Out of all the mutual funds that we are acquainted with, liquid funds top the list of investments in India as these are regarded less risky as compared to others as they invest in fixed-income assets that mature within 91 days, such as certificates of deposit, treasury bills, commercial papers, and other debt instruments. Also, there’s no lock-in period with liquid funds, which makes it the most preferred option of Indian investors. Liquid funds carry a low-risk profile, as they primarily invest in high-quality fixed-income securities with short maturities. As a result, investors with low risk appetite prefer these funds for investment.
However, as an investor, one should be cautious even when investing in low risk vehicles and make sure that they are headed in the right direction. Here we list a few factors which one should consider while picking the best liquid funds.
Fund Returns
Past fund performance plays an important role while selecting the right funds. Choosing funds which have given consistent returns in the past might be a good idea. Also, funds which have outperformed their benchmark and peer funds can turn out to be winners. However, one should always consider their investment horizon before zeroing on the right liquid fund for themselves.
Fund Manager / House
Before deciding to invest in liquid funds, one should check the track record of the fund house. Those which have consistently performed in the past might be trusted to stay resilient and strong despite market fluctuations. Choosing a fund house which has a consistent track record of more than a decade can be trusted upon with your investments.
Expense Ratio
One of the best criteria to check the efficiency of a mutual fund scheme. It gives a clear picture of the funds that are used to manage the expenses of the fund. A lower expense ratio indicates a better take home for investors. In short, choosing a liquid fund with a low expense ratio works well for investors.
Financial Ratios
Analyzing the fund from different perspectives can help in choosing the right ones. Tools such as standard deviation, Sharpe, alpha, and beta ratios bring forth the extent of risk a fund carries. A fund which has higher standard deviation and beta is riskier than a fund with lower beta and standard deviation. Funds which have a higher Sharpe ratio are bound to give better returns.
Here’s a list of the Best Liquid Funds 2022 by ET Money, which will make things easier for investors who don’t want to go in for detailed research, as these are shortlisted after looking at its positive points.
