Liquid-plus funds turn more attractive for short play as yields rise

Mumbai : Investors looking to park idle money for three to six months may find liquid-plus funds attractive as rising shortterm bond yields have created a better entry point in recent months. Yields on 3to 12-month securities have climbed 25–75 basis points, making these funds more appealing for short-term parking of money.

Yields on three-month bank CDs (Certificates of Deposit) that were at 6% in December have climbed to 6.88%, while six-month and 12-month papers that traded at 6.4% and 6.7% have moved up to 7% and 7.10%. Even one-year AA-rated instruments rose from 7.65% to 8.06%.

“Liquid plus funds give you opportunity to earn up to 100–200 basis points more than bank deposits and can be used to meet near-term goals,” said Nikhil Gupta, founder, Sage Capital.

Bank deposits of up to six months typically deliver 4.5–5%, while liquid funds, money-market funds or low-duration schemes can offer 6.5–7% before expenses.

“The rise in yields is due to seasonally tight liquidity conditions in the Jan–Mar period, and we expect liquidity conditions to normalise by April 2026,” said Manish Banthia, CIO (fixed income), ICICI Prudential Mutual Fund. Banthia said elevated yields in short-duration segments provide a favourable riskreward opportunity, and suggests investors consider lowor short-duration funds with a minimum three-month horizon.

Liquid-Plus Funds Turn Attractive
These funds typically invest in securities with average maturities between three and six months, allowing slightly better yields than liquid funds, while keeping interest rate risk limited.

Yields have firmed up due to higher outflows and weakness in the dollar-rupee pair. Fund managers pointed to tight liquidity due to higher government cash balances, which typically get released only toward the end of the quarter and the financial year.

Short-term yields are unlikely to stay elevated for long, fund managers said, citing strong macroeconomic conditions and projected GDP growth of 6–7%.

“We expect RBI to be growth supportive and accommodative in 2026-27 as India’s macroeconomic landscape remains healthy. Headline inflation may trend up but will average between 3.5% and 4% while real GDP growth will likely be 6.5%, supported by increased demand for credit and lower drag due to fiscal consolidation,” said Dhawal Dalal, president & CIO (fixed income), Edelweiss Mutual Fund. Dalal said investors could consider allocating to fixed-income products with a six-month horizon.