What are Liquid Mutual Funds

liquid funds Trading

Liquid Mutual Funds are a top-rated investment tool among investors worldwide, especially from India. Liquid Funds are the type of mutual funds. Still, unlike other mutual funds, which are usually long-term investment tools, Liquid Funds make short-term investments that give investors a high liquidity level and safety guarantees. Below we will describe the main features of Liquid Funds, and you will learn how to invest in Liquid Funds online and offline and how much money they need to start.

What are Liquid Mutual Funds?

Liquid Funds are debt funds that can only invest in short-term assets, particularly debt and money market securities whose maturity does not exceed 91 days. Example of such investments is certificates of deposit, bonds, treasury bills, commercial papers, government securities, etc. A Liquid Fund’s return depends on the securities’ price. Still, prices for short-term investments do not change significantly, and the returns of a liquid fund are more stable than other investments.

Note! The Securities and Exchange Board of India (SEBI) has set the norm that Liquid Funds can only invest in securities with a maturity of up to 91 days.

Liquid Funds better than the Saving bank account?

liquid mutual funds
Many compare investing in Liquid Mutual Funds with a Savings bank account because both are relatively safe and offer high liquidity. At the same time, these two options have different interest incomes. On average, banks provide around 4% interest, and Liquid Funds can provide from 7% to 9%, depending on the fund and the investment amount. Therefore, to earn more income, you should investigate how to invest in Liquid Mutual Fundsonline or offline.

There are also some additional benefits of Liquid Funds compared to a Savings bank account:

  • There is no lock-in period for investments in Liquid Funds. Therefore, you get the flexibility to invest and withdraw your money any time you want.
  • You can withdraw your money in most cases within a week after the initial investment without any penalty. Moreover, in contrast to bank deposits, you will also get a return for these several days.
  • Liquid Funds invest only in short-term instruments, so you do not need to wait long to get your return.

All mentioned-above differences make Liquid Funds very popular among investors. For example, your investment in the HDFC Liquid Fund or another one in India can get good short-term returns.

Why invest in Liquid Funds?

liquid fund features
There are several features of Liquid Funds that make them attractive for beginners and experienced investors.

Firstly, this is an efficient financial instrument that helps allocate money for a short period. Although there is no guarantee of return in mutual funds, the clear structure of Liquid Funds makes them an attractive financial instrument compared to fixed interest instruments, such as bank deposits. They carry the lowest interest-rate risk in the debt funds category.

Secondly, if you need money, you can withdraw your Liquid Fund investment any time, even a few days after the investment, and you will not lose your returns for these days. It means that with Liquid Funds, investors earn on an accrual basis for every day their investments work.

In addition, Liquid Funds’ investments have tax benefits.

Finally, there is no exit load for Liquid Funds in most cases where investments were in the fund for a week or longer. It means that the investment expenses in this instrument are relatively low compared to other types of investments.

Types of Liquid Funds

There is no strict differentiation between the types of Liquid Funds. They all should invest funds in short-term instruments. Generally, mutual funds can be divided into four categories: money market, equity, bond, and target-date funds. Each of these types has its features and a level of risk.

While choosing the suitable Liquid Fund, you should consider the following parameters:

  1. Calculation of returns, both current and historic.
  2. Credit rating. The highest rating is AAA, and the higher rating means fewer risks for investors.
  3. Portfolio allocation. It is how the fund allocates investors’ money to get returns.
  4. Portfolio’s maturity. It is helpful to look at how the general fund’s portfolio works. A short-term maturity means fewer risks.
  5. The objective of the fund, for example, fast growth, a direct plan regarding dividends, or others.

After you analyze these parameters, you will see which liquid fund you want to invest in online.

Benefits of investing in Liquid Funds

liquid fund benefits
As you can see, investing in Liquid Mutual Funds has many benefits, and we would like to summarize the most important:

  • Low risk. A Liquid Fund is a low-risk fund that focuses on safe and steady returns for its investors. Thus, the fund’s value remains stable compared to funds holding securities with longer maturities. At the same time, the higher risk implies higher potential earnings, so the return from Liquid Funds is much more modest than from long-term investments.
  • Low cost. Liquid Funds are known as low-cost debt funds because they are not actively managed like other Mututal Funds. On average, their expense ratio is around 1% or even lower, which allows them to achieve an excellent return to the investor.
  • Variable holding period. With Liquid Funds, investors can hold their money as long as they want, and in most cases, they can withdraw funds within seven days without penalties or other exit charges. Therefore, it is straightforward to enter and exit a liquid fund.
  • Fast redemption. Usually, Liquid Funds process redemption requests within one day. Such a quick turnaround is available because funds invest only in securities with high liquidity.

As you can see, Liquid Funds have many advantages that make them one of the most popular investment instruments.

How to invest in Liquid Funds?

If you decide to invest in a SBI Liquid Fund or another, there are some steps you should take to consider:

  • Step 1: Choose the best performing fund;
  • Step 2: Make sure it accepts investments in the amount that is acceptable to you.
  • Step 3: Invest in the most suitable mutual fund for you.

invest in liquid fund
First, you need to check the credit rating of the Liquid Fund you are considering for investment and investigate the details, such as its returns in the past, costs related to investments, and other important issues.

Then, you need to make sure that the size of the fund is proportional to the size of your investment. In most cases, the minimum investment amount depends on the fund, and the range is vast – from $100 to $1000. So, everyone can invest in the Liquid Funddirectly.

In addition to the above, you should choose a Liquid Mutual Fund with an excellent track record and impressive past performance. For example, you can invest in the following Liquid Funds in India and other countries: Baroda, Franklin, Axis, Indiabulls, SBI, HDFC and more.

Note! Many online Liquid Funds in India guarantee reliance so that you can choose the one according to your preferences.


Liquid Funds have many advantages, such as low cost, stable return, and an easy exit process. Since the underlying assets of Liquid Funds have maturities of up to 91 days, they do not experience much volatility. That makes them a low-risk investment. Still, it is essential to note that Liquid Funds are not risk-free. You should make a market analysis before investing in Liquid Funds or using some other financial instruments.

Alex has over 9 years of experience in the financial markets. He has worked with various financial firms globally and has expertise in technical and fundamental analysis. Alex has fulfilled various roles in his 9 years of experience and has worked as an investment advisor, financial analyst, risk management officer, manager of financial planning, and compliance and internal control officer.

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