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Why are liquid funds not doing well these days? Should I move my short-term money somewhere else?
- Bhaskar
I don't think moving your money somewhere else will generate anything more. If you want low risk and predictable return, liquid funds are the way to go or maybe ultra-short-term-bond funds that go a little higher on the maturity curve and therefore may earn little more.
To answer why you are earning less return is simply because interest rates have come down. Having said that, there is a fear that inflation may rise in the coming months, and if inflation goes up, interest rates will also go up. If that happens, yields will come back again.
So, these funds will benefit a bit as they can incrementally invest at better yields. These funds invest in bonds maturing in about 91 days, and therefore, their corpus comes up for re-investment frequently. These re-investments may soon happen at better yields, thereby giving slightly better returns to you.
This article was originally published on February 18, 2022.
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