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Working Capital

Management
What is Working
Capital?
Working capital is the
capital available for
conducting the day-to-day
operations of an
organisation; normally the
excess of current assets
over current liabilities.
Working capital management is
the management of all aspects
of both current assets and
current liabilities, to minimise
the risk of insolvency while
maximising the return on assets.
The main objective of working
capital management is to get
the balance of current assets
and current liabilities right.
Importance of working capital
management
Current assets are a major financial position
statement item and especially significant to
smaller firms. Mismanagement of working
capital is therefore a common cause of
business failure, e.g.:
inability to meet bills as they fall due
demands on cash during periods of
growth being too great (overtrading)
overstocking
Working capital management is a key factor
in an organisation's long-term success.

Eg. Subiksha
The balancing act: Profitability v Liquidity
The decision regarding the level of overall investment in
working capital is a cost/benefit trade-off -liquidity versus
profitability.
Unprofitable companies can survive if they have liquidity.
Profitable companies can fail if they run out of cash to pay
their liabilities (wages, amounts due to suppliers, overdraft
interest, etc.).
Liquidity in the context of working capital management
means having enough cash or ready access to cash to meet
all payment obligations when these fall due. The main
sources of liquidity are usually:
cash in the bank
short-term investments that can be cashed in easily and
quickly
cash inflows from normal trading operations (cash sales
and payments by receivables for credit sales)
an overdraft facility or other ready source of extra
borrowing.
Cash balances and cash flows need to be monitored just as
closely as trading profits.
The working capital ratio, calculated as
current assets divided by current liabilities, is
considered a key indicator of a company's
fundamental financial health since it
indicates the company's ability to
successfully meet all of its short-term
financial obligations. Although numbers vary
by industry, a working capital ratio below 1.0
is generally indicative of a company having
trouble meeting short-term obligations,
usually due to insufficient cash flow. Working
capital ratios of 1.2 to 2.0 are considered
desirable, but a ratio higher than 2.0 may
indicate a company is not making the most
effective use of its assets to increase
revenues.
Elements of working capital
Managing working capital involves managing
the individual elements which make up
working capital:
Inventory
Debtors
Creditors
Cash

The most common reasons for a start-up to fail are as follows:


Poor cash flow management.
Absence of performance monitoring.
Lack of understanding or use of performance monitoring information.
Poor debtor management.
Overborrowing. The company is overleveraged and debt is not being
reduced.
Over reliance on a few key customers.
Poor market research leading to an inaccurate understanding of the
target customers wants and needs.
Lack of financial skills and planning.
Failure to innovate.
Poor inventory management.
Poor communications throughout the organization.
Failure to recognize your own strengths and weaknesses.
Trying to go it alone. Trying to do everything yourself and not seeking
external help. Whether this external help be as simple as hiring
additional staff or going to professional services such as a lawyer,
accountant, banker or business coach.
The cash operating
cycle
The cash operating cycle is the length of
time between the company's outlay on raw
materials, wages and other expenditures and
the inflow of cash from the sale of goods.

The faster a firm can 'push' items around the


cycle the lower its investment in working
capital will be.
Calculation of the cash operating cycle
Cash operating cycle is calculated as under:

The cycle may be measured in days, weeks or


months. The holding periods are calculated
using a series of working capital ratios.
Working capital ratios
Ratios to determine the operating cycle
The periods used to determine the cash
operating cycle are calculated by using a series
of working capital ratios.
The ratios for the individual components
(inventory,receivables and payables) are
normally expressed as the number of
days/weeks/months of the relevant income
statement figure they represent.
Inventory holding period
This ratio calculates the length of time
inventory is held between purchase and sale.
Calculated as:

a low ratio is usually seen as a sign of good


working capital management. It is very
expensive to hold inventory and thus
minimum inventory holding usually points to
good practice.
Trade receivables days
The length of time credit is extended to
customers.
Calculated as:

Generally shorter credit periods are seen as


financially sensible but the length will also
depend upon the nature of the business
Trade payables days
The average period of credit extended by
suppliers.
Calculated as:

Generally, increasing payables days suggests


advantage is being taken of available credit but
there are risks:
losing supplier goodwill
losing prompt payment discounts
suppliers increasing the price to compensate.
Inventory
Management?
Good inventory management is all about
having the right amount of product, at the
right price and at the right time.
Importance of inventory management
The challenge ofof good inventory
management isto determine:
the optimum re-order level(how many
items are left in inventory when the next
order is placed), and
the optimum re-order quantity(how many
items should be ordered when the order is
placed)
In practice, this means striking a balance
between holding costs on the one hand and
stockout and re-order costs on the other.
Costs of high inventory levels
Keeping inventory levels high is expensivedue to:
purchase costs
holding cost (storage, stores administration, risk
of theft/damage/obsolescence)
Carrying inventory involves a major working capital
investment and therefore levels need to be very
tightly controlled. The cost is not just that of
purchasing the goods, but also storing, insuring,
and managing them once they are in inventory.
Costs of low inventory levels
If inventory levels are kept too low, the business
faces alternative problems:
stockouts (lost contribution, production
stoppages, emergency orders)
high re-order/setup costs
lost quantity discounts.
Techniques of inventory management:
1. Setting up of various stock levels.
2. Preparations of inventory budgets.
3. Maintaining perpetual inventory system.
4. Establishing proper purchase procedures.
5. Inventory turnover ratios. and
6. ABC analysis.
1. Setting up of various stock levels. To
avoid over-stocking and under stocking of
materials, the management has to decide
about the re-order level, maximum level,
minimum level, Economic order
quantity(EOQ),danger level and average
level of materials to be kept in the store.
Where there is uncertainty, an optimum level
of buffer (or safety) inventory must be carried.
This depends on:
variability of demand
cost of holding inventory
cost of stockouts.
In reality, demand will vary from period to
period, and the reorder level (ROL) must allow
some buffer (or safety) inventory, the size of
which is a function of maintaining the buffer
(which increases as the levels increase),
running out of inventory (which decreases as
the buffer increases) and the probability of the
varying demand levels.
(a) Re-ordering level:
It is also known as ordering level or ordering
point or ordering limit. It is a point at which order
for supply of material should be made. This level is
fixed somewhere between the maximum level and
the minimum level in such a way that the quantity
of materials represented by the difference between
the re-ordering level and the minimum level will be
sufficient to meet the demands of production till
such time as the materials are replenished. Reorder
level depends mainly on the maximum rate of
consumption and order lead time. When this level is
reached, the store keeper will initiate the purchase
requisition.
Reordering level is calculated with the
following formula:.
Re-order level =Maximum Rate of consumption x
maximum lead time
Lead time
X plus
Safety stock
average daily usage
Whats this safety stock and why is it
important? Its the emergency stock you
need to endure unexpected occurrences.
Safety stock is calculated as:
Maximum daily usage
Average daily usage
X minus
X
Maximum lead time in days
Average lead time in days
(b) Maximum Level:
Maximum level is the level above which stock should
never reach. It is also known as maximum limit or
maximum stock. The function of maximum level is
essential to avoid unnecessary blocking up of capital
in inventories, losses on account of deterioration and
obsolescence of materials, extra overheads and
temptation to thefts etc. This level can be
determined with the following formula. Maximum
Stock level = Reordering level + Reordering quantity
(Minimum Consumption x Minimum re-ordering
period)
(c) Minimum Level:
It represents the lowest quantity of a particular
material below which stock should not be allowed to
fall. This level must be maintained at every time so
that production is not held up due to shortage of any
material.
It is that level of inventories of which a fresh order
must be placed to replenish the stock. This level is
usually determined through the following formula:
Minimum Level = Re-ordering level (Normal rate
of consumption x Normal delivery period)
(d) Average Stock Level:
Average stock level is determined by averaging the
minimum and maximum level of stock.
The formula for determination of the level is
as follows:
Average level =1/2 (Minimum stock level +
Maximum stock level)
(e) Danger Level:
Danger level is that level below which the stock
should under no circumstances be allowed to fall.
Danger level is slightly below the minimum level and
therefore the purchase manager should make special
efforts to acquire required materials and stores.
This level can be calculated with the help of
following formula:
Danger Level =Average rate of consumption x
Emergency supply time.
One of the most important problems faced by the
purchasing department is how much to order at a
time. Purchasing in large quantities involve lesser
purchasing cost. But cost of carrying them tends to
be higher. Likewise if purchases are made in smaller
quantities, holding costs are lower while purchasing
costs tend to be higher.
The aim of the EOQ is to minimise the total cost of
holding and ordering inventory. To do this,it is
necessary to balance the relevant costs.
These are:
the variable costs of holding the inventory
(holding costs)
the fixed costs of placing the order (ordering
costs)
Holding costs
The model assumes that it costs a certain
amount to hold a unit of inventory for a year
(referred to as CH in the formula). Therefore,
as the average level of inventory increases,
so too will the total annual holding costs
incurred.
Ordering costs
The model assumes that a fixed cost is
incurred every time an order is placed
(referred to as COin the formula). Therefore,
as the order quantity increases, there is a
fall in the number of orders required, which
reduces the total ordering cost.
Assumptions
The following assumptions are made:
demand and lead time are constant and known
purchase price is constant
no buffer inventory held (not needed).
The calculation
The EOQ can be more quickly found using a formula:

where:
CO = cost per order
D = annual demand
CH = cost of holding
one unit for one year.
2 Preparations of inventory budgets.
Organisations having huge material requirement
normally prepare purchase budgets. The purchase
budget should be prepared well in advance. The
budget for production and consumable material and
for capital and maintenance material should be
separately prepared.
Sales budget generally provide the basis for
preparation of production plans. Therefore, the first
step in the preparation of a purchase budget is the
establishment of sales budget.

As per the production plan, material schedule is


prepared depending upon the amount and return
contained in the plan. To determine the net
quantities to be procured, necessary adjustments
for the stock already held is to be made.

They are valued as standard rate or current market.


In this way, material procurement budget is
prepared. The budget so prepared should be
communicated to all departments concerned so
that the actual purchase commitments can be
regulated as per budgets.
At periodical intervals actuals are compared with
the budgeted figures and reported to management
which provide a suitable basis for controlling the
purchase of materials.
3. Maintaining perpetual inventory
system. This is another technique to
exercise control over inventory. It is also
known as automatic inventory system. The
basic objective of this system is to make
available details about the quantity and
value of stock of each item at all times.
Thus, this system provides a rigid control
over stock of materials as physical stock
can be regularly verified with the stock
records kept in the stores and the cost
office.
proper purchase procedure has to be established
and adopted to ensure necessary inventory control.
The following steps are involved.
(a) Purchase Requisition:
It is the requisition made by the various
departmental heads or storekeeper for their various
material requirements. The initiation of purchase
begins with the receipts of a purchase requisition by
the purchase department.
(b) Inviting Quotations:
The purchase department will invite quotations for
supply of goods on the receipt of purchase
requisition.
(c) Schedule of Quotations:
The schedule of quotations will be prepared by the
purchase department on the basis of quotations
received.
(d) Approving the supplier:
The schedule of quotations is put before the
purchase committee who selects the supplier by
considering factors like price, quality of materials,
terms of payment, delivery schedule etc.
(e) Purchase Order:
It is the last step and the purchase order is
prepared by the purchase department. It is a
written authorisation to the supplier to supply a
specified quality and quantity of material at the
specified time and place mentioned at the
stipulated terms.
5. Inventory Turnover Ratio:
These are calculated to minimise the
inventory by the use of the following formula:
Inventory Turnover Ratio
= Cost of goods consumed/sold during the
period/Average inventory held during the period
The ratio indicates how quickly the inventory is
used for production. Higher the ratio, shorter will be
the duration of inventory at the factory. It is the
index of efficiency of material management.
The comparison of various inventory turnover
ratios at different items with those of
previous years may reveal the following four
types of inventories:
(a) Slow moving Inventories:
These inventories have a very low turnover ratio.
Management should take all possible steps to keep
such inventories at the lowest levels.
(b) Dormant Inventories:
These inventories have no demand. The finance
manager has to take a decision whether such
inventories should be retained or scrapped based
upon the current market price, conditions etc.
(c) Obsolete Inventories:
These inventories are no longer in demand due to
their becoming out of demand. Such inventories
should be immediately scrapped.
(d) Fast moving inventories:
These inventories are in hot demand. Proper and
special care should be taken in respect of these
inventories so that the manufacturing process does
not suffer due to shortage of such inventories. and
6. ABC analysis:
In order to exercise effective control over
materials, A.B.C. (Always Better Control)
method is of immense use. Under this
method materials are classified into three
categories in accordance with their
respective values. Group A constitutes
costly items which may be only 10 to 20% of
the total items but account for about 50% of
the total value of the stores.
A greater degree of control is exercised to
preserve these items. Group B consists of
items which constitutes 20 to 30% of the
store items and represent about 30% of the
total value of stores.
A reasonable degree of care may be taken in
order to control these items. In the last
category i.e. group C about 70 to 80% of the
items is covered costing about 20% of the
total value. This can be referred to as
residuary category. A routine type of care may
be taken in the case of third category.
This method is also known as stock control
according to value method, selective value
approach and proportional parts value
approach.
If this method is applied with care, it ensures
considerable reduction in the storage
expenses and it is also greatly helpful in
preserving costly items.
Just in Time (JIT) systems
JIT is a series of manufacturing and supply chain
techniques that aim to minimise inventory levels and
improve customer service by manufacturing not only
at the exact time customers require, but also in the
exact quantities they need and at competitive
prices.
In JIT systems the balancing act is dispensed with.
Inventory is reduced to an absolute minimum or
eliminated altogether.
Aims of JIT are:
a smooth flow of work through the manufacturing
plant
a flexible production process which is responsive
to the customer's requirements
reduction in capital tied up in inventory.
This involves the elimination of all activities
performed that do not add value.
Jit should result in:
a smooth flow of work through the manufacturing
plant
a flexible production process which is responsive
to the customer's requirements
reduction in capital tied up in inventory.
A JIT manufacturer looks for a single supplier who
can provide high quality, frequent and reliable
deliveries, rather than the lowest price. In return, the
supplier can expect more business under long-term
purchase orders, thus providing greater certainty in
forecasting activity levels. Very often the suppliers
will be located close to the company.Smaller, more
frequentdeliveries are required at shorter notice.
Example of JIT: Dell
Dell has leveraged JIT principles to make its manufacturing
process a success. Dells approach to JIT is different in that
they leverage their suppliers to achieve the JIT goal. They are
also unique in that they are able to provide exceptionally
short lead times to their customers, by forcing their suppliers
to carry inventory instead of carrying it themselves and then
demanding (and receiving) short lead times on components
so that products can be simply assembled by Dell quickly and
then shipped to the customer.
Important Factors to Dells Success:
Dependable suppliers with the ability to meet Dells
demanding lead time requirements.
A seamless system that allows Dell to transmit its
component requirements so that they will arrive at Dell in
time to fulfill its lead times.
A willingness of suppliers to keep inventory on hand
allowing Dell to be free of this responsibility.
What is debtors
management?
Also known as Receivables management.
Receivables are also known as accounts
receivables, trade receivables, customer
receivables or book debts.

The term debtor is used to define as debt


owed to the firm by customers arising
from sale of goods or services in the
ordinary course of business.

Debtors/Receivables, as asset, represent


amounts owed to the firm by customer from
sale of goods or services.
The purpose of maintaining or investing in
receivables is to meet competition, and to
increase the sales and profits.

Allowing credit to customers will encourage


sales, or at least the absence of the
availability of credit will encourage customer
to selectan alternative supplier offering more
favourable credit terms.

Allowing too much credit, or notmanaging


the credit policy carefully enough, could result
inirrecoverabledebts. This represents a loss
of income to the company, affecting both
profitability and cash flow.
Do as much as you can to reduce the
likelihood of overdue payments becoming
bad debts. This is not always easy, especially
if you are just starting your business and
every new sale is cause for celebration.

Beware many small businesses take on


large new orders, only to face months of
struggle before they get paid.
Tight credit control is your first line of defense
to avoid or limit your exposure to bad debts.
Some essential steps:
Complete thorough credit history and
business reference checks before you offer
credit to new customers.
Set reasonable but fair credit limits and tell
employees to notify you if a customer
wishes to exceed an agreed credit limit.
Insist that you approve additional credit
extensions in advance.
Include clear payment conditions in your
payment terms.
These conditions may seem tough but youll
find most honest customers dont mind, and
firm but fair is a good principle to follow.
Prevention is easier than collection
Good systems are a problem-prevention tool:
Bill promptly, as soon as the job is
completed. Theres no reason to wait until
the end of the month. Late invoices often
get paid late. Prompt invoicing means
youre less likely to miss the next payment
cycle, particularly with larger corporations.
Keep an up-to-date record of what each
customer owes you. Most accounting
programs enable you to flag overdue
payments and any customers approaching
their credit limit.
Watch out for sudden increases in order
values. A customer may build a good credit
record with you by paying a series of
smaller orders on time, followed by a much
larger order. This deserves investigation
and possibly another credit check before
you approve the order.
Follow up overdue accounts immediately to
uncover the problem. You dont want to
appear desperate, but small invoices can
often be missed, especially by a large
business.
Call a few days after the payment is due.
Depending on who it is and the amount,
this could be the day after its due or within
seven days.
Be top-of-mind
Once customers know you will always make
contact if payment is late, youre more likely
to get priority when they schedule payments.
Many pay the ones that make the most
noise. Within reason, make sure this is you.
Stick to your payment terms
Stop supplying customers who havent paid
accounts on time. You can use the fact they
need your goods or services as leverage to
get paid promptly. This might cost you some
business, but it will also reduce the risk of
being exposed to bad debt.
Similarly, stop supplying goods to customers
in excess of their credit limit until you have
reassessed their creditworthiness.
What is Creditors
management?
Creditors can be classified as :
Trade creditors(suppliers)
Banks
Statutory bodies
Trade creditors
Also called trade payables, accounts payable,
sundry creditors
Many businesses think extending payables as
long as possible is a good strategy.
Unfortunately, it is not. Delaying payment
can erode supplier goodwill, resulting in
slower delivery times, less willingness to fix
defects, slower responses to queries and
more onerous payment terms. On the flip
side, paying early can sometimes yield
substantial benefits in situations where
suppliers offer discounts or rebates for early
payment.
Trade creditors can be better managed by
having following processes:
1. Vendor selection process
2. Supplier master data set-up process
3. Procurement process
4. Vendor bill processing process
5. Accounting and reporting process

Let us look at them one by one.


1. Vendor selection process
One of the first steps towards implementing a robust
accounts payable system involves setting up preferred
supplier lists.

As part of the vendor selection process, there are several


steps you can take to negotiate terms designed to optimize
your working capital:
Establish priorities for the vendor negotiation process and
ensure key personnel and decision makers are
involved(e.g. Chief Financial Officer and Chief Procurement
Officer)
If you are coming from a position of strength, negotiate
longer payment terms
Regularly seek opportunities to negotiate better pricing as
well. Strategies might include asking vendors to match
lower prices offered to your competitors or negotiating for
volume discounts
2. Supplier master data set-up process
Once you have negotiated terms with vendors, it is essential
to properly capture and maintain this data. Inaccurate entry
of this data can result in more than payment errors. It can
also lead to account delinquencies which prevent you from
taking advantage of available discounts and may even lead
to disruptions in supply. To avoid these outcomes:
Ensure all service level agreements (SLAs) are accurately
reflected in your purchasing and payables systems. Among
other things, supplier master data should indicate
product/service details, quality standards, delivery timelines,
supplier responsibilities, and any regulatory compliance
mandates that apply
Regularly update payment terms and the availability of
volume discounts, trade credits or other ongoing or periodic
rebates. If supplier contractual terms change or are
renegotiated, the supplier master data must also be
changed to keep pace
Properly store your supplier contracts. Document
3. Procurement process
Lax procurement standards can place the business
at risk of over-spending or trading with unapproved
suppliers. Here are some strategies to consider:
Issue POs for each new order so that you can validate with
agreed-upon terms
Maximize your savings potential by exploring the viability
of any available early payment discounts, volume rebates
or trade spend initiatives, but keep in mind that you dont
need to accept all early payment discounts. If you dont have
the cash on hand or the capital outlay exceeds the benefit of
the discount offered, it may make sense to pay later
4. Vendor bill processing process
Properly managing the vendor bill processing process is yet
another way to improve liquidity. Here are some strategies to
consider to improve processing:
Refuse to pay inaccurate invoices (e.g. errors in quantities,
amounts, address, etc.). These should be sent back to the
supplier
Process invoices on a timely basis and include a date
stamp. Be sure to complete this process in line with
defined internal service level agreements
Avoid paying invoices early; without risking key supplier
relationships, you should pay invoices only when they are
due
Conduct a management review of the AP aging listing to
determine appropriate follow-up actions
5. Accounting and reporting process
Before you can actively manage payables, you need
assurance that your accounting reports are up-to-date and
that your financial records fairly reflect current accounts
payable balances. Without this data, many businesses
lack visibility into how much, how often and when they pay
their suppliers. This can hamper you from choosing
the most advantageous payment terms or selecting
appropriate timing in which to pay vendors. To bolster your
accounting and reporting process, you need to:
Validate supplier invoices against contract terms and their
associated POs to ensure billing accuracy
Improve real-time reporting capabilities by automating
reconciliations and ensuring they remain current
Follow up on and resolve unreconciled items on a timely
basis
Post journal entries before reporting period cut-off dates
Properly track all payments made, not just vendor
payments
Banks
If you are going through a cashflow crisis and are finding it
difficult to pay-off temporary loans/overdrafts etc. , you need
your bank more than ever.
Build up a track record, so the bank trusts you and the
information that you provide. Supply the bank with regular
management accounts, including cashflow forecasts and a
brief commentary explaining variances. Be proactive,
rather than waiting to be asked for the information.
Give advance warning to the bank of any cash shortages.
The earlier your warning, the more support you may
receive in return. Provide evidence to show that the cash
shortage is only temporary. Third party evidence, such as
a confirmed order, can be particularly effective.
Shop around, so you have options ready when you need
them. Find out what is on offer from other banks and
alternative sources of finance. This will enable you to
negotiate better terms if neccesary.
Statutory bodies
These could be termed as Inflexible creditors and can
seriously damage your business if not paid on time. All rates
and taxes, statutory dues etc. must be paid on time. Utility
suppliers can cut-off your electricity, water, telephone.
What is Cash
management?
Good cash management implies
maintaining adequate liquidity with
minimum cash in the bank (Lasher,
2010).
The objective of cash management
is to have adequate control over the
cash position, so as to avoid the risk
of insolvency and use the excessive
cash in some profitable way. An
optimum cash management system
is one that not only prevents the
insolvency but also reduces the days
in account receivables, increases the
collection rates, chooses the suitable
investment vehicles that improves
the overall financial position of the
The importance of the cash
management can be understood in
terms of the uncertainty involved in
the cash flows. Sometimes the cash
inflows are more than the outflows,
or sometimes the cash outflows are
more. Thus, a firm has to manage
cash affairs in a way, such that the
cash balance is maintained at its
minimum level while the surplus
Cash management is particularly
important for new and growing
businesses. Cash flow can be a
problem even when a small business
has numerous clients, offers a
product superior to that offered by
its competitors, and enjoys a sterling
reputation in its industry. During
downturns in the economy, declines
in sales and poor cash management
At times like these, business managers or owners
need to sit down and undertake cash management
analysis so that they can address shortfalls, increase
revenues, and cut spending -- before it's too late.
They need to meet with department heads and
employees and take control and adopt a better cash
management plan. The plan may call for some harsh
measures, but if employees are involved they will
understand that these are needed for the business's
survival. You can also bring the plan to bankers with
the hope that through a face-to-face meeting and
evidence that you are getting the cash management
situation under control they will extend your
business much-needed credit.

We also saw in a slide above that cash management also


involvesuse of excessive cash in some profitable way.

What to do if you have temporary surplus. The best way is to


invest it so that you can earn some extra income. However,
keep one thing in mind. The first objective is to maintain your
businesss liquidity and second is return. Because we have
seen without liquidity your business might sink. So,
investment has to be in something that you can encash at a
very short notice.

What are the venues where you can invest:


1. Bank Fixed Deposits: Traditional, low income but safest
2. Corporate Fixed Deposits: Give higher return than bank
fixed deposits but cannot be encashed before majurity
and less secure. So you need to be careful and read the
company carefully before investing.
3. Mutual Funds: Very Popular now a days
Mutual Funds:
You need the answers to the following three questions that concern you
the most while investing your temporary surplus:
Is my money going to be safe?
Can I have my money whenever I want it?
Does it give me a better Returns on Investment than storing my money
away in a bank?
The answer to these three questions is a loud and resounding YES.

Investing through mutual funds also allows you to


1. Avail the services of a professional money manager (who manages the
mutual fund)
2. Access a diversified portfolio despite making a limited investment

There are various types of mutual funds to invest in but your best bet here
is investment in liquid funds. Liquid funds are a type of debt mutual funds
which primarily invest in money market securities as short as one day. As
the name implies, these funds have high liquidity and the returns are less
fluctuating since these funds invest in securities which are maturing in
very short-term. You can have your money back in a working days notice.
All you have to do is pop in a redemption request, and your money is
credited to your bank account.

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