What are liquid funds?

Liquid funds are open-ended debt mutual funds that invest in short-term debt instruments. These funds invest in money market instruments like certificates of deposit, commercial papers, treasury bills, call money, among others. Liquid funds are liquid in nature and carry low risk. Most liquid funds do not have any exit load. That means, investors can exit these schemes anytime without paying any penalty.

Is liquid funds better than FD?

It’s a wrong comparison. You lock in your money for a fixed period in an FD. A liquid fund is similar to your money in a savings bank account. The bank pays 3.5% on your savings bank account. Liquid fund may offer you a marginally higher. Remember, returns from liquid funds are market related.

Are liquid funds risk-free?

Liquid funds have the lowest risk among debt schemes because these funds invest in very short term papers and securities with higher credit ratings. But, still these funds carry interest rate risk and credit rate risk.

How much returns can you expect?

Liquid funds have the potential to offer marginally higher returns than a savings bank account. As per Value Research, the liquid fund category has given a return of 3.46% over the last one year.

All you need to know about liquid funds

You can park your money for a few days or weeks or months till you decide on what to do with the money.

By ET Online | Jun 24, 2022, 03.53 PM IST

What are liquid funds?
Liquid funds are open-ended debt mutual funds that invest in short-term debt instruments. These funds invest in money market instruments like certificates of deposit, commercial papers, treasury bills, call money, among others. Liquid funds are liquid in nature and carry low risk. Most liquid funds do not have any exit load. That means, investors can exit these schemes anytime without paying any penalty.
Who Should invest in them?
If you have surplus funds, but don’t know what you want to do with it? Well, park the money in a liquid scheme. You can park your money for a few days or weeks or months till you decide on what to do with the money. Investors can park their emergency funds in liquid funds.
Is liquid funds better than FD?
It’s a wrong comparison. You lock in your money for a fixed period in an FD. A liquid fund is similar to your money in a savings bank account. The bank pays 3.5% on your savings bank account. Liquid fund may offer you a marginally higher. Remember, returns from liquid funds are market related.
Are liquid funds risk-free?
Liquid funds have the lowest risk among debt schemes because these funds invest in very short term papers and securities with higher credit ratings. But, still these funds carry interest rate risk and credit rate risk.
How much returns can you expect?
Liquid funds have the potential to offer marginally higher returns than a savings bank account. As per Value Research, the liquid fund category has given a return of 3.46% over the last one year.