Fluid
- Managing liquidity is all about estimation. Overestimate your need for cash and you’d end up hoarding, miscalculate impending expenses and you’ll find yourself scrambling for funds. Yet, it’s crucial to have a money pot that can serve as a backstop in times of need.
- For an instrument to be considered liquid, it must enable quick and easy conversion to cash on short notice & vice versa. When you park money in savings/current account or opt for fixed deposits, you’re simply handing out money to the bank. In return, the bank pays a predetermined interest to you for the defined period.
- Apart from conventional offering from banks (i.e., savings accounts, flexi-deposits, short-term FD’s) liquid & short-term debt mutual funds (i.e., actively-managed debt products) also qualify for short-term savings. These types of funds offer relatively better return on the capital as they buy and sell bonds (active trading) in an open market.
- A healthier approach to building a liquid portfolio is to assess your need for money and deploy them through graded percentage allocations across different instruments. Diversify the portfolio based on the parameters of liquidity, volatility and returns.
- A few pointers before building an efficient liquid portfolio;
- Choose instruments primarily based on the facilities they offer i.e., ease of transacting process i.e., online/offline, no. of days to receive the invested sum etc.
- Evaluate all costs (disclosed & hidden) & fees and/or penalties involved before transacting
- Consider the tax implications on returns from these short-term savings.
If you’re wondering how to get your idle money to work for you, we can help you make the most of it. We take great care to ensure that the information we share with you is complete and updated with full disclosures. Our commitment includes outlining material facts, historical data, and product associated risks to facilitate your decision-making process.
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