How to Invest in Liquid Funds in India?

Liquid funds are a type of debt mutual fund and are one of the best investment options available in India. They are also known as money market funds. As the name suggests, these funds invest in short-term debt instruments with a maturity period of up to 91 days. This article will help you understand “How to invest in Liquid Funds in India?”.

What are Liquid Funds?

Liquid funds are a type of mutual fund that invests in short-term debt instruments. These funds are also known as money market funds. Liquid funds are considered to be one of the safest investments because they are not subject to market risks.

Investors can choose from a variety of liquid funds depending on their investment objectives. For example, there are liquid funds that invest in government securities, corporate bonds, and commercial papers.

Liquid funds offer several benefits for investors. First, they provide immediate liquidity, which means that investors can easily access their money when they need it. Second, they offer higher returns than bank deposits. Finally, they are relatively low-risk investments when compared to other types of mutual funds and hence most financial experts suggest investments in liquid funds.

How do Liquid Funds work?

 Liquid funds are ideal for investors who want to park their money in a safe investment option that offers liquidity and relatively higher returns than a savings account.

When you invest in a liquid fund, your money is used to purchase short-term debt instruments such as commercial paper, certificates of deposit, and government securities. The fund’s portfolio managers strive to maintain a balance between safety and profitability, which results in higher returns than what you would earn from a savings account.

Liquid funds are considered one of the safest investment options because the debt instruments that they invest in are typically low-risk. However, like all investments, there is always some degree of risk involved. Therefore, it’s important to research different liquid fund options before investing your money.

If you’re looking for an investment option that offers the liquidity, safety, and higher returns than a savings account, then a liquid fund may be the right choice for you.

Who should invest in Liquid Funds?

Liquid funds are best suited for investors with a short-term investment horizon of three to six months. For example, if you are planning to buy a house in the next six months, investing in a liquid fund would be a good option to park your excess money.

Invest in Liquid Funds
Cash and Gold

What are the risks involved in investing in Liquid Funds?

Liquid funds are considered to be one of the safest investment options as they invest in short-term debt instruments. However, like all investments, there are certain risks involved for individuals who invest in liquid funds. These include interest rate risk, credit risk, and liquidity risk. Interest rate risk is the risk that the value of your investment will go down if interest rates rise. Credit risk is the risk that the issuer of the debt instrument in which the fund has invested will default on its payments. Liquidity risk is the risk that you may not be able to redeem your units at NAV (net asset value) in case of an emergency.

Does investing in Liquid Funds lead to good returns?

One of the most common questions we get asked is whether investing in Liquid Funds leads to good returns. The answer, as with most things related to personal finance, is that it depends. The key thing to remember is that, like any other investment, your individual circumstances will play a big role in how successful your investment strategy is.

That being said, there are a few general things to keep in mind when considering whether or not to invest in Liquid Funds. First and foremost, Liquid Funds are best suited for short-term goals. If you’re aiming to save for a down payment on a house or for a child’s college education, for example, you may want to consider other options.

Another important thing to remember is that Liquid Funds are not guaranteed investments. This means that there is always some risk involved, and you could lose money if the market takes a turn for the worse.

Finally, it’s also worth noting that Liquid Funds can be a great way to diversify your investment portfolio. If you’re looking for ways to reduce your overall risk, investing in a mix of different asset types is one of the best strategies and an invest

What are the benefits of investing in Liquid Funds?

Liquid funds are one of the safest and most accessible types of investments. They offer a higher return than a savings account and are more flexible than a fixed deposit. Liquid funds are also low-risk, which makes them ideal for first-time investors or those who want to preserve their capital.

There are many reasons to invest in liquid funds, but the three main benefits are safety, flexibility, and returns.


Liquid funds are considered to be one of the safest types of investments. This is because they invest in short-term debt instruments, which are less volatile than stocks or other asset classes. This makes them ideal for investors who want to protect their capital.


Liquid funds offer more flexibility than other investment options such as fixed deposits. This is because you can withdraw your money at any time without being penalized. This makes them ideal for investors who need access to their money quickly or unexpectedly.


Liquid funds offer higher returns than savings accounts and fixed deposits. This is because they are invested in debt instruments that offer higher interest rates. This makes them an attractive option for investors who are looking to grow their money over time.

How to invest in Liquid Funds in India?

When it comes to investing, there are a lot of options to choose from. But what if you’re looking for something that’s a little more liquid than stocks or bonds? Enter: liquid funds.

They have a lower risk than other types of investments but also tend to have lower returns. That said, they can still be a good option for people who are looking to diversify their portfolios or who want to have some money that they can access quickly if needed.

So how do you invest in liquid funds? Here are a few tips:

1. Decide how much you want to invest. This will help you narrow down your options and choose a fund that fits your needs.

2. Consider your goals. What are you hoping to achieve by investing in a liquid fund? Do you want to preserve capital, generate income, or both?

3. Research different funds. Once you know what you’re looking for, take some time to compare different options and find the right fit for you.

4. Read the fine print. Before investing, make sure you understand the fees and expenses

How to find the best Liquid Fund?

There are a lot of options when it comes to finding the best liquid funds. You can look online, or speak with a financial planner to find the right option for your needs. Here are five tips to help you find the best liquid fund:

Start with a goal

Before investing in a liquid fund, make sure you have a specific goal in mind. Are you looking for short-term liquidity? Long-term liquidity? Or do you want access to multiple funds all at once? Once you have your goal in mind, it will be easier to choose the right liquid fund for you.

Consider your investment timeline

Liquid funds can be helpful if you need access to money quickly. However, if you have a longer investment timeline, a traditional mutual fund may be a better option. Liquid funds typically charge higher fees than traditional mutual funds, so be sure to consider your costs before making your decision.

Review fees and expenses

Liquid funds typically charge higher fees than traditional mutual funds. Before investing, be sure to review each fund’s fee structure and expenses to make sure they’re appropriate for your needs!

Fund Name1-Year Return
Aditya Birla Sun Life Liquid Fund Growth7.49%
Axis Liquid Fund Growth7.47%
UTI Liquid Fund – Cash Plan Growth7.47%
ICICI Prudential Liquid Fund Growth7.4%
L&T Liquid Fund Growth7.37%

Is there any taxation on investments in Liquid Funds?

Yes, there is taxation on investments in Liquid Funds. The tax rate depends on the type of fund and the length of time the investment is held.