Liquid funds in India offer a low-risk, high-liquidity option for short-term investing. These debt mutual funds invest in securities maturing within 91 days, ensuring stability. With mutual fund AUM at ₹65.74 lakh crore in 2025, per AMFI, these funds are a go-to for many. What makes them tick? Let’s dive in.
What Are Liquid Funds?
These funds in India park money in short-term instruments like treasury bills, commercial papers, and certificates of deposit. They prioritize safety and quick access over high returns. For example, you can redeem up to ₹50,000 instantly via some funds. They suit parking surplus cash or emergency funds.
Key Features:
- High Liquidity: These funds offer easy access to your money. Most fund houses provide instant redemption facilities up to ₹50,000, allowing you to access your funds within minutes on business days.
- Low Risk: These funds invest in high-quality, short-term instruments with low credit risk. SEBI regulations mandate that these funds invest only in listed securities and limit sector-wise investments to 20%, enhancing portfolio diversification and safety.
- Competitive Returns: Historically, liquid funds have offered annual returns ranging from 6% to 9%, outperforming savings accounts and fixed deposits.
- Tax Efficiency: Investments held for over three years qualify for long-term capital gains tax at 12.5% without indexation benefits, making them more tax-efficient than fixed deposits, especially for investors in higher tax brackets.
Benefits: Safety and Liquidity
A big draw of liquid funds in India is their stability. They deliver steady returns—6-7% annually, per the Economic Times—outpacing savings accounts (3-4%). Withdrawals hit your account within a day, unlike FDs with lock-ins. In addition, low volatility makes them ideal for conservative investors.
Risks and Taxation:
While safe, these funds in India aren’t risk-free. Credit risk arises if issuers default, though top funds stick to AAA-rated securities. Interest rate changes can tweak returns slightly. Taxation follows debt fund rules: gains are taxed at slab rates since 2023, per SEBI. For instance, a ₹1 lakh investment yielding 7% faces tax on ₹7,000. Moreover, mutual fund inflows grew 20% in 2024, per IBEF, with liquid funds staying popular.
Who Should Invest?
Liquid funds in India suit those needing quick access to cash—professionals, businesses, or retirees. They’re great for short-term goals (1-3 months) or as a pitstop before equity investments. Check expense ratios (0.1-0.3%) and fund house ratings before choosing. Learn more at the SEBI website.
Conclusion:
Liquid funds in India offer a compelling alternative to traditional savings instruments, providing better returns, high liquidity, and low risk. They are particularly beneficial for short-term investments and emergency funds. However, it’s crucial to assess individual fund performance, credit risk, and associated costs before investing. Ready to invest securely? Explore more fund insights now!
– Ketaki Dandekar (Team Arthology)
Read more about Liquid Funds here – https://groww.in/liquid