Liquid Funds
Some investments are made with a short time horizon in mind, and liquid funds are meant for such investments. They invest in debt and money market instruments that mature quickly. The category is often explored for managing surplus money that may be ...
Top Mutual Funds
71,448.394 | 4406.60 | 6.36 % | 6.92 % | 6.23 % | Moderate | |
65,878.25 | 5534.98 | 6.37 % | 6.94 % | 6.24 % | Low to Moderate | |
63,686.622 | 455.54 | 6.47 % | 7.03 % | 6.32 % | Moderate | |
54,543.056 | 417.13 | 6.37 % | 6.96 % | 6.25 % | Low to Moderate | |
44,865.853 | 3136.95 | 6.47 % | 7.02 % | 6.31 % | Low to Moderate | |
39,816.842 | 5695.39 | 6.39 % | 6.97 % | 6.25 % | Moderate | |
35,870.385 | 6902.27 | 6.43 % | 7.00 % | 6.29 % | Moderate | |
27,632.156 | 462.21 | 6.43 % | 6.98 % | 6.28 % | Moderate | |
22,044.206 | 4449.76 | 6.40 % | 6.99 % | 6.27 % | Moderate | |
19,663.309 | 2808.66 | 6.37 % | 6.98 % | 6.27 % | Low to Moderate | |
19,370.739 | 4032.32 | 6.44 % | 7.00 % | 6.28 % | Low to Moderate | |
16,796.536 | 3868.83 | 6.38 % | 6.96 % | 6.25 % | Low to Moderate | |
15,800.352 | 3404.12 | 6.39 % | 6.96 % | 6.25 % | Low to Moderate | |
13,416.474 | 5117.82 | 6.40 % | 6.96 % | 6.25 % | Moderate | |
12,258.547 | 3644.55 | 6.44 % | 7.02 % | 6.30 % | Low to Moderate | |
10,973.242 | 2975.65 | 6.32 % | 6.96 % | 6.26 % | Low to Moderate | |
8,086.648 | 3248.56 | 6.35 % | 6.95 % | 6.27 % | Low to Moderate | |
6,878.831 | 1069.07 | 6.45 % | 0.00 % | 0.00 % | NA | |
6,649.972 | 2719.24 | 6.41 % | 6.99 % | 6.29 % | Low to Moderate | |
6,365.237 | 2492.88 | 6.48 % | 7.02 % | 6.31 % | Moderate | |
5,574.759 | 1558.60 | 6.32 % | 6.71 % | 5.99 % | Low to Moderate | |
5,182.446 | 3378.46 | 6.38 % | 6.98 % | 6.26 % | Low to Moderate | |
4,351.901 | 1230.48 | 6.40 % | 6.99 % | 0.00 % | Low to Moderate | |
2,915.467 | 4238.63 | 6.44 % | 7.00 % | 6.28 % | Low to Moderate | |
1,759.182 | 76.89 | 6.28 % | 6.89 % | 6.22 % | Low to Moderate | |
1,339.276 | 3246.55 | 6.39 % | 6.98 % | 6.29 % | Low to Moderate | |
1,254.811 | 45.15 | 6.04 % | 6.79 % | 6.22 % | Low to Moderate | |
1,153.178 | 2157.26 | 6.17 % | 6.77 % | 6.08 % | Low to Moderate | |
1,019.021 | 1836.01 | 6.40 % | 6.99 % | 6.30 % | Moderate | |
929.677 | 14.85 | 6.06 % | 6.59 % | 5.89 % | Low to Moderate | |
756.379 | 1364.30 | 6.32 % | 6.91 % | 6.22 % | Low to Moderate | |
748.228 | 367.89 | 6.43 % | 7.00 % | 6.30 % | Low to Moderate | |
640.008 | 1508.65 | 6.28 % | 6.86 % | 6.08 % | Low to Moderate | |
564.123 | 1052.55 | 0.00 % | 0.00 % | 0.00 % | Low to Moderate | |
531.31 | 37.46 | 5.84 % | 6.56 % | 5.93 % | Low | |
279.275 | 2732.65 | 6.40 % | 7.00 % | 6.16 % | Low to Moderate | |
169.472 | 1113.15 | 6.23 % | 0.00 % | 0.00 % | Low to Moderate | |
74.707 | 30.43 | 5.76 % | 6.46 % | 6.01 % | Low to Moderate | |
50.299 | 1463.45 | 6.14 % | 6.74 % | 6.04 % | Low to Moderate |
Top 5 Liquid Funds (Based on 3-Year Returns)
63,686.622 | 455.54 | 6.47 % | 7.03 % | 6.32 % | Moderate | |
12,258.547 | 3644.55 | 6.44 % | 7.02 % | 6.30 % | Low to Moderate | |
44,865.853 | 3136.95 | 6.47 % | 7.02 % | 6.31 % | Low to Moderate | |
748.228 | 367.89 | 6.43 % | 7.00 % | 6.30 % | Low to Moderate | |
1,019.021 | 1836.01 | 6.40 % | 6.99 % | 6.30 % | Moderate |
What Are Liquid Funds?
Liquid funds are a category of debt mutual funds that invest in securities with very short maturity period. This category is often considered when money may be required over the next few weeks or months.
These funds normally consider money market instruments. The securities held in the portfolio usually mature within 91 days. As older investments mature, new ones take their place. This keeps the portfolio focused on short-duration instruments throughout.
Liquid funds fall under the debt mutual fund category as defined by the Securities and Exchange Board of India (SEBI).
Securities commonly held by liquid funds are:
- Treasury Bills (T-Bills)
- Commercial Papers (CPs)
- Certificates of Deposit (CDs)
- Short-term Government Securities
How Do Liquid Funds Work?
Every liquid fund has a fund manager who makes portfolio decisions. They decide which money market instruments to hold.
Several securities can be held together. As one investment exits the portfolio, another may take its place. This process continues throughout the life of the fund.
A typical liquid fund portfolio involves:
- Contributions from multiple investors
- Exposure to short-duration debt securities
- Interest earned from the underlying investments
- Fresh securities replacing matured holdings
- Ongoing portfolio management by the fund manager
Features Of Liquid Funds
The portfolio composition of a liquid fund is one of its unique features. It looks different from that of many other debt funds. One reason is the maturity restriction applicable to the securities held.
A few characteristics stand out:
- No security in the portfolio can exceed the prescribed maturity limit, which is 91 days in most cases
- Debt and money market instruments form the core of the portfolio
- Investors can choose between SIP and lump sum investments
- Portfolio holdings change as securities mature
- Redemption requests are generally processed within a short time frame
The category continues to remain focused on short-duration instruments throughout.
Benefits Of Investing In Liquid Funds
The category combines short-term debt investments with the convenience of a mutual fund structure. It has a few other practical advantages.
Access to Funds | Money can be withdrawn when required instead of remaining locked in for years |
Temporary Parking Option | Some investors use liquid funds to earn some income while deciding where to invest next |
Income From Underlying Securities | Returns are generated through the securities held in the portfolio |
Exposure Across Securities | The portfolio is not dependent on a single issuer or instrument |
Professional Oversight | Day-to-day portfolio decisions are handled by the fund manager |
Multiple Ways to Invest | Both SIP and lump sum routes are available |
How Do Liquid Funds Generate Returns?
Many of the securities in liquid funds earn interest during their tenure. Some may also be purchased at a discount and redeemed at face value on maturity.
As securities mature, the fund manager reinvests the proceeds into other eligible instruments. As income is earned, the Net Asset Value (NAV) of the fund changes accordingly.
Interest Earned on Securities | The portfolio earns income from debt and money market instruments |
Gains on Maturity | Certain instruments generate gains when they mature |
Fresh Investments in the Portfolio | New securities added to the portfolio continue contributing to the overall income |
Accumulated Portfolio Income | Income earned across the portfolio forms part of the amount received on redemption |
Liquid fund returns are not fixed. They differ across schemes and market conditions.
Who Should Invest In Liquid Funds?
Investment choices are often linked to when the money will be needed. Long-term goals may call for a different approach than short-term goals that need money within the next few months.
Investors who choose liquid funds are those who normally have:
- Money earmarked for an upcoming purchase or payment
- Funds awaiting deployment into another investment
- Temporary surplus in a bank account
- A portion of an emergency corpus
- Business funds that may be needed at short notice
Risks Associated With Liquid Funds
No investment category is completely free from risk. The same applies to liquid funds. Some examples of risks include:
- The issuer of a security may face financial stress
- Changes in interest rates can influence portfolio values
- Market conditions can affect returns
- Different schemes can follow different portfolio strategies
- Returns are not guaranteed
- The level of risk can vary from one scheme to another.
Taxation Of Liquid Funds
Liquid fund taxation follows the rules applicable to debt mutual funds. The tax treatment for debt mutual funds changed from 01 April 2023. Gains are generally taxed according to the investor's applicable income tax slab. The holding period does not change the treatment.
Purchased on/after 1 April 2023 | All gains treated as STCG and taxed as per income slab. No LTCG status or indexation benefit. |
Purchased before1 April 2023 | LTCG possible after 24 months; taxed at 12.5% without indexation. |
Income Distribution cum Capital Withdrawal (IDCW) option | Added to gross income and taxed at the applicable slab rate. |
Tax rules can change. Reviewing the latest provisions before investing is always advisable.
How To Invest In Liquid Funds?
Liquid funds are available through mutual fund platforms and stockbroking applications. Investors can also invest directly through the fund house.
To invest in liquid funds via Kotak Neo, look for mutual funds under other investments.
- Log in to the account
- Search for the preferred liquid fund
- SIP and lump sum options are both available
- Enter the amount you wish to invest
- Confirm your payment
Factors To Consider Before Investing In Liquid Funds
One liquid fund may not look exactly like another. Differences can exist in the securities held, the size of the fund, and the costs associated with managing it.
Portfolio holdings, expense ratio, fund size, and investment horizon are a few areas that are often reviewed before investing. Comparisons with fixed deposits are also common, particularly when liquidity and taxation are part of the decision.
Disclaimer: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully.
FAQs
Liquid funds are a type of debt mutual fund. They invest in short-term money market and debt instruments. The securities in the portfolio mature within 91 days.
Yes, liquid funds carry a certain amount of risk. Since they invest in debt securities, interest rate movements can affect them. But compared to many other debt fund categories, its price fluctuations are generally lower.
People with a short investment horizon should look at investing in liquid funds. They are also used for temporary surplus money and as part of an emergency corpus.
Liquid funds are more commonly associated with shorter holding periods. There are other mutual fund categories suitable specifically for long-term investments.
The minimum investment amount varies from one scheme to another. Some liquid funds start with only a few hundred rupees. Others may have a larger minimum investment amount.
The ideal investment horizon for liquid funds is a short holding period of up to 3 months. The exact horizon depends on the purpose of the investment and when the money may be needed.
Taxation follows the rules applicable to debt mutual funds. For many investments made on or after 01 April 2023, gains are generally taxed according to the investor's income tax slab.
There is no single best liquid fund that suits everyone. Portfolio quality, expense ratio, fund size, and investment horizon are some of the factors commonly reviewed before choosing a liquid fund to invest in.
Yes. many liquid funds offer SIP investment alongside lump sum investment. Its availability may vary from one scheme to another.
The cut-off time for subscribing to a liquid fund is 1:30 PM. On the other hand, the cut-off time for redemption of these funds is 3:00 PM.