Thursday, 10 January 2019


Do you have substantial idle cash and are looking for short-term investment havens? If yes, then Liquid Funds are your answer.

Liquid Mutual Funds offers you very high liquidity, the safety of capital and very low risk. They are open-ended debt mutual funds which invest in short-term fixed-interest generating money market instruments like treasury bills, commercial paper, etc with the maturity of up to 91 days.

Liquid funds are akin to a savings account when it comes to liquidity because they offer you zero exit load. Additionally, Liquid Funds give you the flexibility of withdrawal and redemption as per the investor’s convenience.

Liquid Funds remains least affected by interest rate fluctuations because the fund manager of the Liquid Fund allocates the money in high-credit quality debt instruments in varying proportions as per the investment mandate of the fund ensuring the average maturity of the portfolio is up to 3 month. Fund Manager also matches the maturity of the underlying securities to the portfolio maturity to deliver pretty high returns.


  1. Risk: Liquid Funds carry low risk, but they are not entirely risk-free.
  2. Post Tax Returns: The Returns generated by the Liquid Funds are higher than Savings Account and typically lie between 7-9%.
  3. Cost: Fees charged for managing these funds is termed as Expense Ratio which is typically between 1 to 2.25%.
  4. Investment Horizon: They are meant for shorter investment period up to 91 days.
  5. Financial Goals: Liquid Funds helps in achieving your Financial Goals. Investing in liquid Funds is a good option if you want to create an Emergency Funds.
  6. Taxation: STCG from debt funds is considered as income for investors & taxed according to his income slab. LTCG from debt funds is taxed @ of 20% after indexation and 10% without the benefit of indexation.
  7. Access to High Ticket Size Government Securities: The Government Securities carry very high ticket size and are out of the reach of the retail investors. However, you can indirectly invest in these Government Securities through Liquid Funds.
  8. Professionally Managed: Professional Managers manage these funds who can take a timely call if they see any interest rate risk, credit risk or inflation risk associated with the underlying holdings. It should be noted that Liquid Funds do not carry Zero Risk.


  • You should invest in Liquid Funds if you fall in the following categories:-
  • You are a Risk-averse investors
  • You have Short-term goals
  • You want to construct a Contingency Fund
  • You are looking for Diversification of Portfolio.
  • You have Short Term High Liquid Needs
  • You want to offset the volatility associated with other financial holdings like Equity.
  • You want to hold funds temporarily before while waiting for an investment opportunity to arise.
  • You are looking for an inflation-adjusted rate of return
  • You want to invest in Mutual Funds but want the safety of capital.
  • If you think you belong to any one of the above categories, consider contacting a Financial Advisor who will assist you to find a perfect Liquid Fund that will help you achieve your goal.

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