It is always good to have some liquid funds in the hand. Especially if you are an investor, having liquid funds will be very helpful to do an emergency investment. First of all, liquid funds are nothing but the amount that you hold in hand as just cash or money and not in the form of any other valuable property or investment. Liquid funds can then be converted into any other type of investment.
Do not put all your eggs in the same basket
This rule is applicable for all the investors and not just for investment but also for planning your finance as well. It is always good to do different types of investments. Investing on stocks, FD, Public provident fund, monthly SIPs, insurance with returns, lands and other properties etc. are some of the ways in which you can do the investments. Some people might have just one of the above as their investment strategy. If they are investing on lands, it will always be only on immovable properties. This strategy is not good. Even while investing on stock market, we should not just stick with only one stock.
Here is where the importance of liquid funds come in place. When there is a financial need in the family and if you really need urgent money, you will not be able to immediately sell any property or any other holding to get your money. Sometimes when you plan to sell your share, it would have been a tough time for the share price as well and you will end up in a huge loss. That is the reason why every investor should always have liquid funds in hand. When there is an emergency need of money, you should always be able to use the liquid funds and take care of the needs without touching your other investments.
Diversification of the funds
The investments that you make should always be diversified as mentioned above. At the same time, the liquid funds that you have in hand should also be diversified. Keeping the liquid funds in just one place or one bank account is also not a good idea. Keep the liquid funds in a different bank account and you can also keep some of the amounts as just cash in a safe place. This will help you when there is a need. There are lots of people who are not comfortable getting a loan during tough times. It is quite common for everyone to have an emergency financial need. During such situations, the liquid funds that you have been holding will be of great help.
There should also be a limit set to the liquid funds that you are holding. When the limit reaches, you should not let the funds overflow. You can plan for a good opportunity to make a new investment or an addition to an existing investment. Keeping lots of liquid funds is also not a good idea because the value of money that you will be holding will not provide you any profit. People used to say that in a share market, just holding may not be a great idea all the time, there should be continuous trading happening just to keep the portfolio active. Similarly, having liquid funds and making the liquid funds grow is not a great idea. A limit should be set and anything above the limit should be taken for other investment options.
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