Understanding Liquid Funds
Liquid funds are debt funds that pool money from investors and invest in debt and money market securities issued by governments and corporations like commercial papers (CP), treasury bills (T-Bills), and certificates of deposits. The securities mature in a maximum of up to 90 days
The term 'liquid' refers to how easy your investment can be converted to cash.
These funds serve as an alternative to bank deposits.
Suitable to set up an emergency fund.
Top schemes of Liquids Mutual Funds
| Fund Name | Returns | Actions | ||
|---|---|---|---|---|
| 1 Year | 3 Year | 5 Year | ||
Returns calculator
Total Invested : ₹ 6,00,000
Profit : ₹ 56,200,000
Current value : ₹ 1,16,20,000
Frequently Asked Questions
Which is the best liquid fund?
Consider your goals and these factors before choosing a liquid fund.
Check the safety (credit quality of holdings)
Liquidity and instant redemption facility
AUM (large & stable funds)
Is a liquid fund better than an FD?
Liquid funds and FDs have different use cases.
Choose Liquid Fund if:
You need a better alternative to a savings account with quick access to cash.
You have idle money that you may need in a few days/weeks.
You want higher returns than FDs without a lock-in.
Choose FD if:
You need guaranteed, risk-free returns.
You want a fixed tenure for savings (e.g., for a goal like a child's education).
You don't mind paying premature withdrawal penalties.
Are liquid funds 100% safe?
No, liquid funds have a risk of default.
Is a liquid fund tax-free?
No, liquid funds are not tax-free. They are taxed based on the investor's tax slab, regardless of the holding period. Earlier, the long-term capital gains benefit, with the indexation benefit, was applicable if you held debt funds for 3+ years.
What are the disadvantages of liquid funds?
Liquid funds are good for short-term investment, but here are some drawbacks:
Expense ratio
No guarantee of returns
Don't have a tax benefit (indexation benefit)
Can I withdraw all of my money from a liquid fund?
Yes, you can withdraw all your money from a liquid fund within 24 hours if you place a redemption request before the cut-off time (2 PM).
Insta-redemption is also available for up to Rs. 50,000 or 90% of the balance, whichever is lower.
Is SIP allowed in liquid funds?
Yes, you can invest money in liquid funds through SIP every month.
Who should invest in liquid funds?
Some who want to:
Building a lump sum for future investments
Emergency fund planning
Parking large idle cash