Where Should You Park Your Money effectively for a short period?
A short story-based blog
on Low Duration & Liquid Funds
It was a calm Tuesday afternoon at Bharadhwaj
Investsmart, the sun casting a mellow glow through the office blinds. Ram
and Sujata, a couple in their late forties, had just settled into the soft
leather chairs across the desk of Vaidy, the firm's founder and chief
advisor.
“Vaidy Sir,” Ram began, adjusting his
glasses, “we’ve got a sizeable bonus this year, and we don’t need the money
immediately. But we also don’t want it lying idle in the savings account.
What's the best place to park it temporarily?”
Vaidy smiled, “Great question. Let me
walk you through two of the most useful but often misunderstood investment
tools for exactly this situation - Liquid Funds and Low Duration
Funds.”
Sujata leaned forward, curious.
“Aren’t both of them mutual funds that invest in debt? How are they different?”
“You’re absolutely right,” Vaidy
nodded. “They are both debt-oriented mutual funds - but with different
personalities.”
He drew a quick chart on his
whiteboard.
“Think of Liquid Funds as the
closest alternative to your savings account - but with a bit more return
potential. These funds invest in very short-term instruments, like treasury
bills or commercial papers, typically maturing within 91 days. Because of this,
they carry minimal risk and offer easy access to your money - usually
within a day.”
Ram raised an eyebrow, “Sounds good.
And low duration funds?”
“Ah, now that’s the more adventurous
cousin,” Vaidy said, chuckling. “Low Duration Funds invest in debt
securities with an average duration of 6 to 12 months. So, they aren’t as
liquid as liquid funds, but they offer slightly better returns, assuming
you don’t need the money immediately and are okay with a little more risk due
to possible interest rate changes.”
Sujata tapped her pen thoughtfully.
“So, if we plan to use this money in, say, 9 -12 months for a vacation or
school fees, would low duration be better?”
“Exactly,” said Vaidy. “You’re
matching the investment duration with your need. That’s smart planning. If you
wanted immediate access and didn’t want to risk even minor fluctuations,
I’d say go with Liquid Funds. But for anything over 6 months and where
you’re not anxious about daily movements, Low Duration Funds might edge
out in returns.”
Ram nodded slowly. “And what about
safety?”
“Both are relatively safe. But yes,
liquid funds are ultra-conservative, while low duration funds come with
a mild degree of interest rate sensitivity. Always align your choice
with your time horizon and risk tolerance.”
Sujata smiled. “Thanks, Vaidy. That
really simplified things.”
As they left with a better
understanding - and a plan for their bonus - Vaidy leaned back, pleased. At
Bharadhwaj Investsmart, it wasn’t about selling products - it was about giving
clients clarity and confidence.
The content made available in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and completeness of the content, it should not be considered as a substitute for professional consultation.
No comments:
Post a Comment