On watching the video on the left, you will notice that in all the situations, the money is lying idle for a short period of time. In certain cases, the exact time when the money needs to be taken out may not be known. What does the investor do? Where should the money be parked?
One must consider a few things here:
- The money is parked for a short period of time
- One would prefer that there is no drop in investment value
- Even low returns should be fine, if it means the money is safe
- The period may not be fixed or even known
Given the above four conditions, putting money in a fixed deposit may serve the purpose, but only to a limited extent. One of the big benefits of a fixed deposit is the safety. At the same time, one of the limitations is often ignored – the money can be parked for a fixed period only – there is no flexibility regarding the period of parking.
That is where liquid mutual funds could be considered. As is conveyed in the video too, they offer safety, reasonably good returns (in comparison to savings accounts or even very short term fixed deposits) and full flexibility of redemption any time.