If you want to park excess funds for a short time except in your savings account, then liquid funds are the best option you have. These are short-term debt funds with a maximum maturity duration of 91 days, ideal for investors with excess investable funds. As the name suggests, these are highly liquid funds that would earn higher returns than your savings account. Let's understand liquid funds in detail and why these should be in your investment kitty.
Liquid funds are short-term investment schemes that invest in short-term, fixed-income generating investment options like Treasury bills, commercial papers, and the like. The primary purpose of the liquid funds is to offer liquidity, and hence, the investments in the fund have a maximum maturity period of 91 days. The allocated proportion meets the fund's objective. The fund manager ensures that the average maturity period of the scheme is three months. It reduces the sensitivity of the fund's returns due to changes in interest rates, making it less vulnerable. As a result, the fund's returns don't experience too many fluctuations and create a low-risk investment option for investors. Liquid funds are ideal for parking idle investable amounts - emulates the liquidity aspect of a bank's savings account but earns higher returns. Moreover, there is no lock-in period. Hence, investors can use liquid fund schemes instead of their savings accounts to make higher returns.
Liquid funds are parked generally into by AMC into commercial papers , t-bills ,certificate of deposit.
You can expect around 6-8% returns.