Liquid Fund
A debt mutual fund investing in money-market instruments maturing within 91 days.
How it is identified
Test: every instrument in the portfolio has a residual maturity of 91 days or less
Unit
qualitative
In depth
The short maturity limit keeps interest rate risk very low, which is why liquid funds are used for parking money rather than for growing it — their returns track short-term rates and nothing more. They are not risk-free: credit risk remains, and Indian liquid funds have taken losses when a short-dated issuer defaulted. Since 2019 they carry a graded exit load for redemption within seven days, to discourage the very short-term institutional money that created redemption pressure. They are the standard source for a systematic transfer plan and a reasonable place for an emergency reserve beyond the bank balance.
Worked example
A liquid fund returning 6.5% on ₹5,00,000 parked for three months yields roughly 5,00,000 x 6.5% x 0.25 = ₹8,125 before tax — better than a current account and not a substitute for an investment.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Liquid Fund” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.