Liquid mutual funds: Steps to jumpstart your investment portfolio

Building your investment portfolio and long-term wealth is more straightforward and more accessible than some would have you believe. While stock and bond markets can seem unpredictable and volatile at times, relatively safe and proven investment options are available that just about anyone can use to get started. One such option that has grown significantly in popularity recently is liquid mutual funds.

Liquid mutual funds offer investors an accessible way to invest in a professionally managed, diversified basket of securities with low minimum investment amounts and easy liquidity if funds need to be withdrawn. In this article, we will explore what liquid mutual funds are, the key benefits they provide, and the practical steps you can take to begin using them to build the foundation of an investment portfolio tailored to your financial goals and risk tolerance.

Understand the basics of liquid mutual funds

Liquid mutual funds are becoming increasingly popular among investors as they offer a higher return potential than traditional savings accounts while providing a low-risk investment option. These funds invest in highly liquid money market instruments such as treasury bills, commercial papers, and certificates of deposit, offering a high degree of liquidity and a steady source of income. Furthermore, these funds have no lock-in period, making them a flexible investment option suitable for short-term and long-term investors.

By understanding the basics of liquid mutual funds, investors can diversify their portfolios and potentially earn higher returns while minimising their risk exposure. Investment funds in UAE, such as liquid mutual funds, are regulated by the Securities and Commodities Authority (SCA), ensuring a safe and transparent investment process for investors.

Factors to consider while choosing a liquid fund

Before jumping into investing in a liquid mutual fund, there are several factors that investors should consider to ensure they make an informed decision. Before choosing a liquid fund, it’s essential to understand your investment goals and objectives. Are you looking for short-term gains or long-term growth? Do you need regular income, or are you willing to take on higher risk for potentially higher returns?

Once you have a clear understanding of your investment goals, there are other crucial factors to consider, such as the fund’s expense ratio, past performance, fund manager’s expertise and track record, and the size and stability of the fund. Investors should also assess the credit quality of the underlying securities the fund holds to ensure they align with their risk appetite.

Knowing your investment amount and time horizon

Investors should also determine the amount they are willing to invest in a liquid fund and their investment time horizon. Liquid mutual funds offer high liquidity, so investors can access their funds at any time without facing penalties or lock-in periods. It makes them an ideal option for emergency funds or short-term savings goals.

However, if you have a longer investment time horizon, consider other options that offer potentially higher returns, such as equity or bond funds. It’s essential to clearly understand your financial goals and time horizon before selecting the right liquid mutual fund.

Process of investing in liquid funds online or via an app

Investing in liquid mutual funds has become easier than ever with the availability of online platforms and mobile apps. These platforms offer a convenient and efficient way to manage your investments, allowing you to track your portfolio’s performance and make investment decisions at your fingertips.

To invest in a liquid fund online or via the app, investors must choose a reputable platform that offers access to SCA-regulated funds. Most platforms require investors to create an account and complete a know-your-customer (KYC) process, verifying their identity and ensuring they meet the eligibility requirements.

Once the account is set up, investors can browse various liquid funds available on the platform, compare their features and performance, and make an informed decision based on their investment goals.

Monitoring your investment performance

Monitoring its performance regularly is important after investing in a liquid mutual fund. It involves keeping track of the fund’s NAV (Net Asset Value) and comparing it to its benchmark or other similar funds in the market. It’s also important to stay updated on changes in the fund’s portfolio composition and overall strategy.

Consider switching to a different fund if the fund does not meet your expectations or align with your investment goals. However, it’s important to note that frequent switching can result in higher transaction fees and potentially lower returns.

Final thoughts

Liquid mutual funds are an excellent option for investors looking to diversify their portfolios and potentially earn higher returns while minimising risk exposure. By understanding the basics of liquid mutual funds and carefully considering various factors, investors can make informed decisions and choose the right fund that aligns with their financial goals and risk tolerance. With the convenience of online platforms and mobile apps, investing in liquid funds has become more accessible than ever before.

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