Liquid fund

A liquid fund is a debt fund that holds money-market instruments maturing within 91 days, often used to hold money for short periods.

A liquid fund lends for short periods. It holds treasury bills, commercial paper, certificates of deposit and similar instruments, each maturing within 91 days. Because the holdings are so short, its NAV barely reacts to interest rate changes and usually rises a little every day.

How it works in practice:

Cut-off. A purchase received with the money before 1:30 pm gets the previous day's NAV. See cut-off time.
NAV every day. Liquid funds publish a NAV for every calendar day, including weekends and holidays.
Exit load. A very small charge applies to redemptions in the first six days, falling each day, and none from the seventh.
Redemption. Money usually reaches your bank the next business day. Many liquid funds also offer instant redemption of up to ₹50,000 a day, or 90% of the holding if that is lower.

A liquid fund still carries some credit risk, since it lends to companies as well as the government. Its riskometer is usually Low to Moderate.

Liquid funds are taxed like other debt funds, and they are often the source fund for an STP.

Related terms

Debt fund Cut-off time STP Credit risk

Guides

STP and SWP: how scheduled transfers and withdrawals work

A systematic transfer plan moves a fixed amount between two funds of one fund house. A systematic withdrawal plan pays a fixed amount to your bank. How each works and is taxed.

Look up a fund you hold

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