Top Rated Liquid Funds in 2024 - Best Liquid Funds

Scheme Name	Min. Investment	AUM (in Cr.)	Rating	1Y Returns	3Y Returns	5Y Returns
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AUM (in Cr.)

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Returns on Liquid Funds

Total Investment

₹ 1,20,000

Gain

₹ 40,000

Current Value

₹ 1,60,000

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About Liquid Funds

Liquid funds are a type of Mutual funds that invests primarily in short-term money market instruments, such as treasury bills, commercial papers, and certificates of deposit. They are a suitable option if you're looking for a place to park your surplus funds for a short period. These funds aim to provide high liquidity and minimal risk of value fluctuation. Here's what you should know:

Short-Term Investments: The investments in liquid funds typically have a maturity of up to 91 days, making them very short-term.
Risk and Return Profile: These funds usually offer lower risk and lower returns compared to other Debt Funds, as they invest in high-quality instruments.
Liquidity: As the name suggests, one of the main features of liquid funds is their high liquidity, allowing quick access to your funds.

Liquid funds present a viable choice when you possess excess cash intended for a short-term investment with minimal risk. Offering an alternative to conventional savings avenues, these funds grant convenient access to your capital while maintaining a low likelihood of value fluctuations. They prove especially advantageous for addressing short-term financial objectives or establishing an emergency fund.

Investing in liquid funds offers several benefits, especially if you're looking for a safe place to park your funds for the short term:

High Liquidity: The primary advantage is the lower risk level, owing to the high allocation in debt instruments. This can be reassuring if market volatility concerns you.
Low Risk: These funds often provide a steady income stream, which can be appealing if you're looking for regular returns.
Better Returns than Savings Accounts: Conservative funds focus on preserving the invested capital, making them a good option for short-term financial goals where protecting your principal is crucial.
No Lock-in Period: Even with a conservative stance, these funds offer diversification across asset classes, albeit in a limited manner.
Suitable for Emergency Funds: They are particularly suitable for investment horizons that are not long enough to ride out the volatility of higher-risk investments.

Liquid funds can be a wise choice if you're looking for a short-term investment with easy access to your funds, low risk, and potentially better returns than a regular savings account. They offer a convenient option for managing emergency funds or parking surplus cash for a brief period. However, it's important to align such investments with your liquidity needs and understand that while they are low-risk, they are not entirely risk-free. As with any investment, consider how liquid funds fit into your overall financial plan and whether they meet your short-term financial goals.

Whether investing in liquid funds is good for you hinges on your financial needs, investment goals, and risk tolerance. Liquid funds are a category of debt funds that primarily invest in short-term money market instruments like treasury bills, government securities, and call money. These funds are known for their high liquidity and relatively low risk. Here's what you should consider:

Short-term Investment:: If you're looking for a place to park your funds for a short period, liquid funds can be an ideal choice due to their high liquidity and short maturity of investments.
Risk Factor: These funds are generally considered to have a lower risk compared to other types of mutual funds, making them suitable if you are risk-averse.
Emergency Fund: Liquid funds can be a good option for your emergency fund, as they offer easy access to your money.

Investing in liquid funds can be beneficial if you're looking for a short-term, low-risk parking place for your funds. They offer ease of access to your money, which is especially useful for managing emergency funds or short-term financial goals. However, it's crucial to align such investments with your overall financial strategy and understand their low-risk, low-return profile

Liquid funds can be suitable for various types of investors, based on their specific financial needs:

Risk-Averse Investors: If you're cautious about risk and prefer to safeguard your capital, Liquid Funds are a suitable choice.
Short-Term Financial Goals: Ideal for those who are looking to invest for a very short period, typically ranging from a few days to a few months.
Emergency Fund Creation: Suitable for individuals looking to create or maintain an emergency fund, given the high liquidity and safety of these funds.
Parking Surplus Funds: If you have surplus funds and are deciding on a long-term investment strategy, parking your funds in Liquid Funds in the interim can be a wise decision.

Liquid funds can be a fitting choice for investors who need a short-term, low-risk investment vehicle, especially for managing emergency funds or temporary cash surplus.
They are also suitable for conservative investors, including those new to mutual funds, seeking stability and easy access to their funds. Always consider how these funds align with your specific financial situation and investment objectives, and remember that while they offer lower risk, their returns are typically modest compared to longer-term or higher-risk investments.

Short-Term Investments: The investments in liquid funds typically have a maturity of up to 91 days, making them very short-term.
Risk and Return Profile: These funds usually offer lower risk and lower returns compared to other Debt Funds, as they invest in high-quality instruments.
Liquidity: As the name suggests, one of the main features of liquid funds is their high liquidity, allowing quick access to your funds.

Investing in liquid funds offers several benefits, especially if you're looking for a safe place to park your funds for the short term:

High Liquidity: The primary advantage is the lower risk level, owing to the high allocation in debt instruments. This can be reassuring if market volatility concerns you.
Low Risk: These funds often provide a steady income stream, which can be appealing if you're looking for regular returns.
Better Returns than Savings Accounts: Conservative funds focus on preserving the invested capital, making them a good option for short-term financial goals where protecting your principal is crucial.
No Lock-in Period: Even with a conservative stance, these funds offer diversification across asset classes, albeit in a limited manner.
Suitable for Emergency Funds: They are particularly suitable for investment horizons that are not long enough to ride out the volatility of higher-risk investments.

Short-term Investment:: If you're looking for a place to park your funds for a short period, liquid funds can be an ideal choice due to their high liquidity and short maturity of investments.
Risk Factor: These funds are generally considered to have a lower risk compared to other types of mutual funds, making them suitable if you are risk-averse.
Emergency Fund: Liquid funds can be a good option for your emergency fund, as they offer easy access to your money.

Liquid funds can be suitable for various types of investors, based on their specific financial needs:

Risk-Averse Investors: If you're cautious about risk and prefer to safeguard your capital, Liquid Funds are a suitable choice.
Short-Term Financial Goals: Ideal for those who are looking to invest for a very short period, typically ranging from a few days to a few months.
Emergency Fund Creation: Suitable for individuals looking to create or maintain an emergency fund, given the high liquidity and safety of these funds.
Parking Surplus Funds: If you have surplus funds and are deciding on a long-term investment strategy, parking your funds in Liquid Funds in the interim can be a wise decision.

Frequently Asked Questions

Liquid Funds are a type of Debt Funds that primarily invest in very short-term market instruments like treasury bills, government securities, and commercial paper, aiming to provide high liquidity. They invest in securities that have a maturity of up to 91 days. This makes them a great option if you're looking for a place to park your funds for the short term, expecting relatively stable returns with quick access to your money.

Liquid Funds typically invest in short-term debt instruments and money market securities. These include treasury bills, commercial papers, certificates of deposit, and government securities. The aim is to invest in instruments that are highly liquid, allowing the fund to offer you quick access to your money, making it an excellent choice for short-term investments.

Liquid Funds can generate profits for you through interest income from the short-term securities they invest in. While the returns on Liquid Funds are generally lower compared to long-term investment options, they offer a predictable avenue for earning income on idle money with minimal risk and high liquidity.

No, Liquid Funds are not tax-free. The interest income from Liquid Funds is added to your overall income and taxed according to your income tax slab. If you sell your investment in a Liquid Fund within three years, the gains are considered as short-term capital gains and taxed accordingly. If held for longer, they are taxed as long-term capital gains with indexation benefits.

Profits from Liquid Funds are subject to taxation based on the holding period. If you redeem your units within three years of investment, the gains are taxed as short-term capital gains (STCG) at your applicable income tax slab rate. For redemptions after three years, gains are taxed as long-term capital gains (LTCG) at 20% with indexation benefits.

Choosing the best Liquid Fund involves considering several factors like the fund's performance history, the credit quality of its holdings, and the fund's expense ratio. Look for funds with a strong track record of stable returns and high liquidity. Additionally, a lower expense ratio can mean higher net returns for you. It's also wise to consider the fund's portfolio composition to ensure it aligns with your risk tolerance and investment horizon.

No, you don't need a demat account to invest in Liquid Funds. You can easily invest through the AMC (Asset Management Company) website or through various mutual fund investment platforms online without a demat account. However, having a demat account can be convenient if you already hold other securities and wish to consolidate your investments.

In the context of Liquid Funds, both lump sum and SIP (Systematic Investment Plan) investments have their merits. A lump sum can be preferable if you have a significant amount of idle money that you wish to park for a short duration, whereas SIPs might not be as common for Liquid Funds due to their very nature of being a short-term investment vehicle. However, you can still set up a SIP for a disciplined savings approach even in the short term.

To start an Liquid Fund SIP online, follow these 4 steps:

Open Demat Account
Choose the Liquid Fund you wish to invest in.
Choose the SIP option, specifying the amount and SIP date
Set up an auto-pay via bank account to automate the SIP payments

Yes, one of the main advantages of Liquid Funds is their high liquidity, meaning you can sell or redeem your units in a Liquid Fund at almost any time without significant penalties or delays. Typically, the redemption process is quick, with funds often transferred to your bank account within one or two working days.

No, Liquid Funds do not have a lock-in period. These funds are designed to offer you high liquidity, allowing you to withdraw your investment at short notice without any penalties or lock-in restrictions, making them an ideal choice for managing short-term financial needs or emergency funds.

While Liquid Funds are considered to be among the safer investment options, they are not without risk. These include interest rate risk, where changes in interest rates can affect the portfolio's valuation, and credit risk, albeit lower, if a security within the fund's portfolio defaults. However, due to their short-term nature, the impact of these risks is relatively lower compared to other fund types.

There is no investment that is completely risk-free, even Liquid Funds. Although considered low-risk investments, particularly when compared to equity funds, they still involves a slight level of risk associated with interest rate fluctuations and credit default. However, since they invested in high-quality, short-term securities, the risk is significantly reduced. It's crucial to keep in mind that although safer, returns are not guaranteed.