Liquidity in mutual funds: 5 things to know

1.Mutual fund liquidity refers to the ease of buying or selling fund units without significant impact on its NAV or market value.

2.A mutual fund is deemed more liquid if its investments include assets that are easy to buy or sell such as money market instruments, govt bonds, and large-cap stocks.

3.If the fund has investments that are less commonly traded, it might impact the liquidity of the fund.


4.Fund Managers ensure liquidity by managing cash inflows from new purchases, prepayments, interest, dividends, and maintaining highly liquid investments.

5.Since open-ended mutual funds offer a feature of any day redemption it is important to meet all redemptions without significantly diluting the interests of remaining unit holders.

Content courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.