Should I invest in a liquid fund as a long-term investor?

Do we Really need liqud fund. we can any time redeem from equity fund and for a long term investor even load will not be there for investment in equity fund for more than 1 year. Even if there is a load it is hardly a bearable portion. I do understand the date of NAV on redemption is subject to market conditions where NAV will be lower. But for which if we keep the funds in liquid fund it will loose an opportunity cost. please advise, Is my perspective is correct. Yes we do require liquid fund to set up an STP by investing in liquid fund than by SIP to avoid bank transactions and bank charges.

Ans: it’s a good question to consider the value of liquid funds, especially when your primary investment focus is on equity funds for long-term growth. While equity funds provide solid returns, the role of liquid funds is more nuanced, adding certain benefits that are essential, even for a long-term investor. Let’s explore how liquid funds can complement your portfolio and address your current concerns from a Certified Financial Planner's perspective.

Understanding Equity Fund Redemptions and Market Risks
Equity Redemptions and Market Conditions: While it’s true that equity fund redemptions after one year avoid exit load, NAV fluctuations can make redemptions unpredictable. Selling equity in a downturn could lead to losses, even in long-term holdings. Liquid funds, however, offer a safety net for such scenarios.

Opportunity Cost Analysis: Keeping a small portion in liquid funds may seem like a lost opportunity. But it’s crucial to weigh this against the risk of having to redeem equity investments in a down market. This slight opportunity cost could save substantial potential loss on equity redemptions during unfavorable market phases.

How Liquid Funds Support Cash Flow and Flexibility
Immediate Liquidity Needs: Liquid funds are ideal for emergency funds. Their easy accessibility ensures quick cash in times of need without touching long-term investments. This immediate liquidity provides comfort, as liquid fund redemptions typically reflect in your account within 24 hours.

STP (Systematic Transfer Plan) Option: A primary advantage of liquid funds is their ability to facilitate STPs into equity funds. STPs allow gradual transfer from liquid funds to equity, reducing exposure to market timing risks. This smooths out volatility, as opposed to direct SIPs from a bank account, which might incur bank charges.

Additional Benefits of Liquid Funds over Equity Funds for Cash Management
Capital Preservation: Liquid funds, being debt instruments, carry minimal risk of capital erosion. They offer a buffer against market risks. Holding short-term cash in equity, by contrast, could expose you to unnecessary market volatility, which may be counterproductive.

Tax Efficiency for Short-Term Gains: Gains in liquid funds held under three years are taxed per your tax slab. While equity funds also offer tax benefits in the long term, the flexibility of liquid funds supports short-term withdrawals without equity’s higher tax impact. Especially for urgent financial needs, this can be a cost-effective choice.

Comparison with Equity for Short-Term Needs
Predictable Returns in Liquid Funds: Liquid funds invest in high-quality, short-term instruments, giving predictable, steady returns. Equity funds, while superior in long-term growth, have inherent volatility. This predictability in liquid funds makes them better for any short-term goals or interim needs.

Avoiding Forced Equity Selling: Liquid funds prevent situations where you may need to sell equity funds at a loss during a market dip. This ability to avoid forced selling in equities protects your long-term gains, as liquid funds serve as an accessible buffer.

Evaluating the Bank Transaction Costs Aspect
STP Convenience Over Bank SIPs: Bank SIPs often attract charges, depending on the bank and fund house. Setting up an STP from liquid to equity funds bypasses these fees, making liquid funds more efficient. STPs from liquid funds also help in better managing your monthly equity investments.

Reduction of Transactional Hassle: Liquid funds simplify cash management within your portfolio, minimizing bank transactions and potential charges. They keep your cash parked in a productive yet safe manner, awaiting deployment into equity funds.

Assessing Liquid Funds in the Context of Portfolio Allocation
Emergency Funds Allocation: Even for long-term investors, an emergency fund is crucial. Liquid funds serve this purpose without disturbing your equity holdings. They are a reliable option for meeting unforeseen expenses while preserving your equity investments.

Risk Management: Liquid funds add a layer of risk management. Instead of drawing from volatile equity funds for unexpected expenses, liquid funds allow you to meet these needs steadily. They ensure that your core equity portfolio remains untouched and continues to grow.

Practical Scenarios Where Liquid Funds Provide Value
Transition Periods: If you’re between investment strategies or waiting to reinvest in equity, liquid funds offer a safe, short-term parking space. This enables you to maintain liquidity while avoiding the volatility of direct equities.

Tactical Cash Allocation: When planning large purchases or payments, liquid funds act as a holding place for cash. For instance, if you plan to reinvest into equities during a market correction, liquid funds let you retain your cash in a secure, yielding environment.

Aligning Liquid Funds with Long-Term Financial Goals
Goal-Based Planning: Liquid funds support goals that require money within three years. For longer-term goals, equity is ideal. But for shorter horizons, liquid funds add a secure layer to your portfolio, ensuring liquidity for near-term needs.

Supporting Large Financial Milestones: Suppose you have a financial milestone in the next few years. In such cases, liquid funds can preserve your principal and generate returns better than a savings account, ensuring your goal is met without equity market exposure.

When Liquid Funds May Be Less Relevant
High Opportunity Cost: If you’re certain you won’t need funds for over five years, then equity funds have the advantage. Equity offers higher returns potential over such long terms, making liquid funds less efficient if no immediate cash needs exist.

Alternative Short-Term Debt Options: Depending on your investment goals and comfort with risk, ultra-short or low-duration debt funds may serve as alternatives. However, these options carry more risk than liquid funds and are less ideal for emergencies.

Final Insights
Liquid funds, while conservative, add immense strategic value to a long-term portfolio. They create a secure, accessible portion of your portfolio, which complements higher-risk equity investments. While liquid funds carry an opportunity cost, their advantages for liquidity, risk management, and tax efficiency often outweigh this downside.

For investors focused on growth, liquid funds enable STP-based investments without disrupting your primary equity allocation. This minimizes bank charges and transactional hassle, helping you build a stable and robust portfolio over time.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment

Ans: Rebalancing your portfolio and shifting part of your investments into liquid funds may seem unnecessary at first glance. However, the idea goes beyond just liquidity. Let's explore why this is important and how it can benefit your financial plan.

1. Portfolio Rebalancing and Risk Management
When your mutual fund app suggests rebalancing, it aims to maintain your desired asset allocation. Over time, your equity investments may outperform, leaving your portfolio more equity-heavy. While this can lead to higher potential returns, it also exposes you to greater risk.

Rebalancing into liquid funds or debt funds reduces exposure to market volatility.

It helps maintain a balanced risk-return profile aligned with your financial goals and risk tolerance.

Liquid funds act as a safety cushion by providing low-risk, low-volatility returns while maintaining liquidity.

2. When to Redeem from Equity Mutual Funds
You can redeem your equity mutual funds whenever needed. However, withdrawing from equities during a market downturn can lock in losses. Timing the market is difficult, so rebalancing gradually by moving some funds to liquid instruments ensures that you protect gains without abruptly exiting the equity market.

Redeem equity funds when they have met your financial goals, or the market reaches your target.

Avoid redeeming equity funds for short-term needs since the market can fluctuate.

Instead of reacting to market changes, you can shift profits into liquid funds and keep the core equity investment intact.

3. Purpose of Liquid Funds Beyond STP
Liquid funds are more than just a tool for Systematic Transfer Plans (STP) when making lump-sum investments. While they help with gradual investment into equity, they also serve as an essential part of your overall financial plan:

Emergency Fund: Liquid funds provide instant liquidity. You can redeem these funds within 24 hours without much hassle, making them an ideal emergency fund. Credit cards may offer short-term relief, but using credit means accumulating debt, which can be costly if not paid off on time.

Regular Withdrawals: If you need funds for ongoing expenses, a Systematic Withdrawal Plan (SWP) from a liquid fund is a convenient and efficient way to meet those needs. This reduces reliance on credit cards.

Short-Term Goals: If you have financial goals within 1-2 years (e.g., a holiday or home renovation), liquid funds are a safer choice compared to equity, which can be volatile in the short run.

4. Why Transfer from Equity to Liquid Fund?
There are several reasons to consider moving part of your investments from equity to liquid funds:

Market Volatility: Equity funds can be highly volatile. Transferring part of your profits to liquid funds helps lock in gains and avoid losses during downturns.

Goal Achievement: As you get closer to achieving your financial goal, reducing equity exposure and shifting to liquid or debt funds helps protect the gains. This strategy ensures your goal is not jeopardized by sudden market fluctuations.

Income Stability: For retirees or those nearing retirement, liquid funds provide a steady, predictable income source through SWP, unlike equity funds which can fluctuate.

5. Cost and Timing Consideration
You mentioned that exit loads in mutual funds are bearable. Indeed, the exit loads in most equity mutual funds are minimal if the holding period is longer than a year. However, there are other factors to consider when switching between funds:

Market Timing: If the market is at a high, it makes sense to rebalance and transfer a portion of your funds to liquid assets. This way, you are securing profits and reducing risk.

Goal-Based Planning: If you have achieved part of your target in equity, moving some money into a less risky asset (like a liquid fund) ensures that you safeguard your progress while still maintaining some exposure to growth.

6. Credit Card vs Liquid Fund for Emergency Needs
While using a credit card may defer payments for 30-55 days, it can lead to unnecessary debt if not managed carefully. Here’s why liquid funds are better for emergency needs:

No Interest Charges: Unlike credit cards, liquid funds don’t come with interest charges. You can access your money without the burden of repayment or interest.

Instant Access: Liquid funds provide quick redemption, often within 24 hours. This ensures you have access to cash whenever needed without the need to borrow.

Credit Card Limits: You are limited by the credit limit on your card, while liquid funds offer flexibility depending on how much you have invested.

Debt Avoidance: Using credit cards for emergencies can lead to a cycle of debt if you’re unable to pay the balance in full. Liquid funds ensure you don’t accumulate unnecessary liabilities.

7. Long-Term Investment Strategy
Liquid funds play a crucial role in building a balanced, diversified portfolio. While equity funds are great for long-term wealth creation, liquid funds serve as a buffer to provide liquidity and reduce volatility.

Liquid funds are ideal for parking short-term surpluses, making them readily available when needed.

Equity funds are for growth, while liquid funds ensure stability and liquidity.

By maintaining a mix of equity and liquid funds, you ensure that your portfolio is aligned with both short-term and long-term needs.

8. No Need to Exit Equity Fully
You don’t need to fully exit equity to invest in liquid funds. Instead, consider moving only a portion of your profits or capital to liquid funds. This ensures that your money is working for you, but you also have liquidity for unexpected expenses.

Maintaining equity exposure is important for long-term wealth creation, but liquid funds give you the flexibility and safety needed for short-term needs and emergency situations.

9. Opportunity for Rebalancing in a Market Correction
By keeping funds in liquid investments now, you prepare yourself for opportunities that may arise during market corrections. When the equity market corrects, you’ll have funds readily available in liquid funds. This allows you to rebalance by moving money from liquid funds back into equity, buying at lower prices.

This strategy ensures you take advantage of market dips and avoid selling equity at a loss during downturns.

A disciplined rebalancing approach can help you build long-term wealth without taking unnecessary risks.

Final Insights
Liquid funds are an important part of your financial strategy, not just for short-term investments or STPs, but also for providing liquidity and stability in your portfolio.

Rebalancing your portfolio by moving a portion from equity to liquid funds helps in risk management and goal protection.

Liquid funds serve as an emergency fund, ensuring that you are not forced to sell equity during market downturns or rely on credit cards for urgent payments.

Consider using liquid funds strategically for goal-based planning, and keep a balanced mix of equity for growth and liquid funds for safety and liquidity.

By keeping funds in liquid investments, you can take advantage of market corrections by rebalancing back into equity at lower prices.

By taking a balanced approach, you can ensure that your investments align with both short-term and long-term goals while reducing the risk of market volatility.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: Hi, I understand that you pursued a medicine course in Russia (a non-European country) and, since you are from India, you have completed the FMGE. Now you want to practice or work in the UK as a doctor?

Based on your question, you are eligible to practice in India after completing your internship (which you haven't mentioned, but I assume you have completed it). The FMGE is essentially a licensure exam for Indian students who have completed their medical studies abroad, so you are eligible to practice in India only.

If you want to practice medicine in the UK, you need to complete the PLAB test, as you are from outside the UK/Switzerland/European countries (Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland).

You also inquired about sponsorship. Here is the information related to sponsorship for practicing medicine in the UK.
(Extracted from general medical council, uk org. )Applying for registration using sponsorship
If you apply through sponsorship, you will have to satisfy the sponsor that you possess the knowledge, skills and experience required for practising as a fully registered medical practitioner in the UK. Each sponsor has their own scheme which we have pre-approved. If you can satisfy the requirements of their scheme, they will issue you with a Sponsorship Registration Certificate (SRC) which you will need for your application with us. Please ensure this is a Sponsorship Registration Certificate for GMC registration, as we can’t accept UK visa sponsorship certificates for your application for registration.
Please note that a core part of all sponsors' criteria is that a doctor applying for an offer of sponsorship must have been engaged in medical practice for three out of the last five years including the most recent 12 months. If you cannot meet these minimum criteria, it is unlikely that you'll be able to supply sufficient evidence to support your application for sponsorship.
Doctors applying through sponsorship are required to demonstrate their English language skills by achieving our current minimum scores in the academic version of the IELTS test or the OET (medicine version).
• Alder Hey International Fellowship Scheme (Anaesthetics)
• Betsi Cadwaladr University Health Board - BCUHB IMG Sponsorship Scheme
• BAPIO Training Academy Ltd – BTA International Fellowship Scheme
• BAPIO Training Academy Ltd – International Training Programme for Postgraduate Doctors
• BAPIO Training Academy Ltd - BTA International Fellowship Scheme – Internal Medicine with interest in Oncology with MSc in Oncology
• Barking Havering and Redbridge University Hospitals NHS Trust - BHRUT Sponsorship Scheme for Overseas Doctors in Clinical Radiology
• Birmingham and Solihull Mental Health NHS Foundation Trust - International Medical Fellowship Programme in Psychiatry (Birmingham)
• Birmingham Women’s and Children’s Hospital – Birmingham Women’s and Children’s International Medical Graduate sponsorship scheme
• Bradford District Care NHS Foundation Trust - International Medical Fellowship in Psychiatry
• Cambridge IVF, Cambridge University Hospitals NHS Trust – IVF Senior Clinical Fellowship Scheme
• Cambridge University Hospital – Senior Clinical Fellowship Scheme in Intensive Care Medicine/Anaesthesia
• Canterbury Christ Church University
• Cumbria Northumberland Tyne and Wear NHS Psychiatry Fellowship Programme
• Derbyshire Healthcare NHS Foundation Trust - International Medical Fellowship Programme in Psychiatry
• Dudley Group NHS Foundation Trust
• East Lancashire Hospitals NHS Trust - Clinical Fellowship in Urology or Ophthalmology
• East Lancashire Hospital NHS Trust - Specialist Clinical Fellowship in Pain Management
• East London NHS Foundation Trust (ELFT) – ELFT Advanced International Fellowship in Psychiatry
• East Suffolk and North Essex NHS Foundation Trust – ICENI Centre Fellowships Programme
• Edge Hill University and Wrightington, Wigan and Leigh NHS Trust – International Training Fellowships in MCh programmes
• ENT UK – Royal College of Surgeons
• Essex Partnership University NHS Foundation Trust – EPUT Advanced Fellowship in Psychiatry
• Frimley Health NHS Foundation Trust – International Fellowship in Regional Anaesthesia combined with MSc in Principles of Regional Anaesthesia at the University of East Anglia
• Great Ormond Street Hospital International Fellowship Programme
• Guy's and St Thomas' Hospitals NHS Foundation Trust – Critical Care
• Guy’s and St Thomas’ NHS Foundation Trust – International Clinical Fellowship Programme (ICFP)
• Guy's and St Thomas' Hospitals NHS Foundation Trust – Obstetrics and Gynaecology
• Guy’s and St Thomas’ NHS Hospitals Foundation Trust – Oncology Specialty Training
• Guy's and St Thomas' NHS Hospitals Foundation Trust – Specialty Training in Anaesthetics
• Harefield Hospital, Royal Brompton and Harefield NHS Trust – Anaesthesia and Critical Care
• Hertfordshire Partnership University NHS Foundation Trust
• Hull University Teaching Hospitals NHS Trust – International Fellows at Hull University Teaching Hospitals NHS Trust
• Humber Teaching NHS Foundation Trust - Sponsored International Fellowship Scheme in Psychiatry
• Imperial College Healthcare NHS Trust – Emergency Medicine
• Imperial College Healthcare NHS Trust – Haematology
• Imperial College Healthcare NHS Trust – International Anaesthesia Trainees
• Imperial College Healthcare NHS Trust – Intensive Care Medicine
• Imperial College, London - Clinical Research
• King’s College Hospital NHS Trusts – International Critical Care Fellowship
• King’s College Hospital NHS Trusts – Paediatric Critical Care Fellowship
• Lancashire & South Cumbria NHS Foundation Trust - Psychiatry specialty Fellowship Scheme
• Lancashire Teaching Hospitals NHS Trust - Overseas Registrar Development and Recruitment (ORDER)
• Leeds Teaching Hospitals NHS Trust – International Fellowship Programme
• Leicestershire Partnership NHS Trust – International Medical Fellowship Programme in Psychiatry
• Lincolnshire Partnership NHS Foundation Trust – CESR Fellowship in Psychiatry or Sponsored Fellowship in Psychiatry
• Lysholm Dept of Neuroradiology – National Hospital for Neurology and Neurosurgery, UCL
• Manchester University NHS Foundation Trust – International Fellowship Programme
• Midlands Partnership NHS Foundation Trust
• Ministry of Defence – International Military Clinical Fellowships
• Modality Partnership - Modality Primary Care International Fellowship Scheme
• NAViGO Health and Social Care CIC – International Medical Fellowship in Psychiatry
• NHS England, East of England - East of England International Office GMC Sponsorship
• NHS Fife – CESR Fellowship Programme in Psychiatry
• NHS Grampian – Psychiatry CESR Fellowship Programme
• NHS Grampian – Multi-specialty SAS Fellowship
• NHS Wales Shared Services Partnership (NWSSP) – All Wales International Medical Recruitment Programme
• Norfolk and Suffolk NHS Foundation Trust (NSFT) - Advanced Clinical Fellowship in Psychiatry
• North Lincolnshire and Goole NHS Foundation Trust (NLAG) Sponsorship Programme
• Northampton General Hospital – Clinical Fellowship in Regional Anaesthesia
• Northampton General Hospital NHS Trust - International Clinical Fellowship in Regional Anaesthesia, Vascular Anaesthesia, or Peri-operative Medicine
• Northamptonshire Healthcare NHS Foundation Trust – International Clinical Fellowship Scheme
• Northamptonshire Healthcare NHS Foundation Trust – International Clinical Fellowship Scheme (Psychiatry)
• Northern Care Alliance – NCA International Medical Fellowship Scheme
• Oxford University Hospitals NHS Foundation Trust – Oxford Eye Hospital
• Oxford University Hospitals NHS Foundation Trust – Oxford Intensive Care Medicine (OxICM) Sponsorship Scheme
• Oxford University Hospitals NHS Foundation Trust – Oxford University Hospitals Sponsorship Scheme
• Oxford University Hospitals NHS Foundation Trust – The Oxford International Neonatal and Paediatric Fellowship Programme
• Rotherham Doncaster and South Humber NHS Foundation Trust - Sponsored International Fellowship Scheme in Psychiatry
• Royal College of Anaesthetists – Global Fellowship Scheme (Anaesthesia or ICM)
• Royal College of Anaesthetists – MTI Scheme
• Royal College of Emergency Medicine
• Royal College of Obstetricians and Gynaecologists – MTI Scheme
• Royal College of Ophthalmologists
• Royal College of Paediatrics and Child Health – International Paediatric Sponsorship Scheme
• Royal College of Paediatrics and Child Health – MTI Scheme
• Royal College of Pathologists
• Royal College of Physicians of Edinburgh
• Royal College of Surgeons of England
• Royal College of Physicians of London
• Royal College of Physicians and Surgeons of Glasgow
• Royal College of Psychiatrists – MTI Scheme
• Royal College of Radiologists – Clinical Radiology
• Royal College of Radiologists – Clinical Oncology
• Royal College of Radiologists – RCR Specialty Training Sponsorship Scheme
• Royal College of Surgeons of Edinburgh
• Royal Devon and Exeter NHS Trust
• Royal Papworth Hospital NHS Foundation Trust – Senior Clinical Fellowship Programme in Anaesthesia and Critical Care
• Royal Wolverhampton Trust – Clinical Fellowship Programme
• Sheffield Children’s NHS Foundation Trust - Rotational Clinical Fellows in Paediatrics, Trauma and Orthopaedic International Fellows, and Subspeciality Fellows in Paediatrics
• Sheffield Health and Social Care NHS Foundation Trust - International Medical Fellowship in Psychiatry
• Somerset NHS Foundation Trust – Somerset Overseas Doctors Sponsorship Scheme
• Somerset NHS Foundation Trust – Psychiatry Overseas Doctors Sponsorship Scheme
• South Warwickshire University NHS Foundation Trust - GMC Multispecialty Sponsorship Scheme
• South West Yorkshire Partnership NHS Foundation Trust – International Fellowship in Psychiatry
• Southmead Hospital, North Bristol NHS Trust – International Obstetrics and Gynaecology Training Programme
• St Bartholomew’s Hospital, Barts Health NHS Trust – St Bartholomew’s Critical Care Fellowship
• St George’s University Hospitals NHS Foundation Trust – International Anaesthetics Fellowship Programme
• St George’s University Hospital NHS Foundation Trust (Dr Nirav Shah) – International Intensive Care Medicine Trainees
• St George’s University Hospitals NHS Foundation Trust – International Emergency Medicine Trainees
• Surrey and Borders Partnership (SABP) NHS Foundation Trust – International Psychiatric and Community Paediatrics Sponsorship Scheme
• Tees, Esk and Wear Valleys NHS Foundation Trust – International Psychiatric CESR or SAS Fellowship
• University College London Hospitals NHS Foundation Trust, Department of Critical Care – Clinical Fellowship Critical Care and Perioperative Medicine
• University Hospital Birmingham NHS Foundation Trust - International Training Fellowship Programme
• University Hospitals Birmingham NHS Foundation Trust - UHB LED Fellowship Programme
• University Hospitals Bristol and Weston NHS Foundation Trust – Bristol Children's Hospital International Fellowship Scheme
• University Hospitals Bristol and Weston NHS Foundation Trust - Department of General Internal Medicine at Weston General Hospital
• University Hospitals Coventry and Warwickshire NHS Trust
• University Hospitals of Leicester NHS Trust - Postgraduate Clinical Fellowship Programme
• University of Buckingham – Master of Medicine
• University of Buckingham – Master of Surgery
• University of Chester and Cheshire and Wirral Partnership NHS Trust – International Training Fellows Psychiatry
• University of Hertfordshire – Professional Doctorate in General Internal Medicine (Clinical MD) Programme
KINDLY NOTE: If your sponsor is not on this list then you cannot apply using sponsorship.
If you have any further questions, please visit the GMC website for more information.

WISH YOU ALL THE VERY BEST.