Liquid Funds are open-ended debt mutual funds that primarily invest in short-term money market instruments with maturity up to 90 days.

Liquid mutual funds invest in money market instruments such as Certificate of Deposits (CDs), Commercial Papers, Term Deposits, Call Money, Treasury Bills, etc.

Given below are the features that liquid funds provide:-

1] 1 Day Liquidity –

Liquid fund withdrawals take place in a very short time, usually within a span of 24 hours.

2] No Entry or Exit Loads –

Liquid funds have no entry load and exit loads. Sometimes exit load is charged if redeemed before the lock in period.

3] Lowest Interest Rate Risk –

Interest rate risk defines the possibility of change in a bond’s price due to a change in prevailing interest rates. Inversely proportionate, when interest rates go up, most bond prices go down. When interest rates go down, bond prices go up.

Given that liquid funds mainly invest in fixed income securities which have a short maturity period, they have one of the lowest interest rate risks as compared to other debt funds.

4] Immediate Liquidity up to 50K –

SEBI has recently mandated that AMC’s should allow instant redemptions of up to Rs. 50,000 from Liquid Funds. Asset management companies (AMCs) will offer instant redemption of Rs 50,000 or 90% of the folio, whichever is lower, in liquid funds.

Some funds that provide instant redemption facility are listed below:-

  1. Reliance Liquidity Fund
  2. DSP Blackrock Liquidity fund.
  3. Aditya Birla Sun Life Liquid Fund
  4. SBI Liquid Fund.
  5. ICICI Prudential Liquid Fund.
  6. Axis Liquid Fund
  7. HDFC Liquid Fund

 5] Lowest Credit Risk –

Unlike typical bank fixed deposits or savings accounts, liquid mutual funds are not insured. Even though money market mutual funds invest in high-quality securities and seek to preserve the value of your investment, risk is inevitable. There is no guarantee that you will receive the invested capital when you redeem your units.

6] No Lock-in Period –

They are known as liquid funds as they have no lock-in period and give you quick access to the cash by redemption.

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