best liquid funds

What are Liquid Funds?

Liquid funds are types of Debt Mutual Fund invested in short-term securities, including Treasury Bills, Corporate Bonds Debentures, Commercial Papers, etc. These types of funds have fixed returns with a maturity period of up to 91 days. One of the main benefits of investing in liquid funds is high liquidity, which means the person can buy/sell the asset and convert it to cash soon. Liquid Funds are the most preferred form of funds as they involve low risk. Thus, these are ideal for risk-averse investors. Also, one can accelerate the redemption request for these funds within 24 hours on working days.

List of Top Liquid Funds in India 2021

Below we have listed some of the best performing liquid funds on the basis of returns they have given in the last 3-5 years.

Mutual fund5 Yr. Returns3 Yr. ReturnsMin. Investment
JM Liquid Fund (Direct) – Growth Option7.64%7.13%
Aditya Birla Sun Life Money Manager Fund – Direct Plan-Growth7.01%6.91%₹ 1,000
Aditya Birla Sun Life Money Manager Fund6.89% 
₹ 1,000
UTI Money Market Fund – Direct Plan-Growth6.81%6.62% 
ICICI Prudential Money Market Fund – Direct Plan-Growth6.80%6.62%₹ 500
ICICI Prudential Money Market Fund – Cash Option 
₹ 500
Kotak Money Market Scheme – Direct Plan-Growth 
6.46%₹ 5,000
UTI – Liquid Cash Plan- Discontinued – Regular Plan-Growth6.95% 
Kotak Money Market Scheme6.60% 
UTI Money Market Fund6.14% 
₹ 10,000

Benefits of Investing in Liquid Funds

1. Fixed Returns

Liquid funds are invested in the debt funds, which provide a fixed interest rate. Thus, the return from the liquid fund is also fixed. As soon as the securities get matured, you will get the principal amount along with the fixed interest that your liquid fund offers.

2. High Liquid Degree

Liquid funds have a high degree of liquidity since the securities are matured in a short period. And, subsequently, you can redeem your invested capital/amount according to your convenience. Plus, there is no lock-in period for investing in liquid funds.

3. No Exit Load

Since liquid funds have high liquidity thus, you will not get any exit loads while withdrawing the capital amount after 7 days from your investment.

4. Low Risk

Since most of the securities of liquid funds have a maturity of 91 days thus, thus the Net asset value (NAV) of the funds remain steady and prevent the portfolio from a change in interest rates.

5. Better than Fixed Deposits and Saving Account

Liquid Funds have higher returns than Saving Account and Fixed Deposits. Also, they have higher liquidity which makes them the best choice over Saving Accounts. In addition to this, liquid funds have given over 7% returns in the last few years, which is definitely higher than the Saving Accounts that offer 4-5 % returns.

Who Should Invest In Liquid Funds?

Any Indian with a bank account in any of the bank account in India can invest in the liquid funds since it has low risk, thus. If you do not wish to take the risk during investment. It will preserve your capital amount and offer high liquidity. Also, the dividends that one gets from these types of funds do not pose any tax. Plus, it offers indexation benefits and withdrawing money from these funds is quite simple. Some of these funds can be redeemed instantly, or the withdrawal is processed within 24 hours. Also, the return offered by the liquid funds is relatively high as compared to the saving accounts and fixed deposits; therefore, if you want to surplus funds, then liquid funds are ideal for you.

Things to Consider While Investing in Mutual Funds

An investor should consider the following parameters while investing in liquid funds.

1. Risk Tolerance

Liquid funds are regarded as safer than mutual funds, but they do carry interest rate risk. Before investing in the liquid fund, check the level of the risk.

2. Expected Returns

Another fact that every investor should look into is expected returns. These funds provide returns within the range of 7% to 9%, which is relatively higher than saving bank accounts. Also, liquid funds offer positive returns on the redemption, but that does not mean that the returns on these funds are guaranteed.

3. Expense Ratio

Like Mutual Funds, Liquid Funds charge a fee for managing the investment, which is called the ‘Expense Ratio’.  According to The Securities and Exchange Board of India (SEBI), the expense ratio should be below 2.25%. Liquid funds have a lower-Expense ratio that offers higher returns in a short period.

4. Financial Goals

Liquid Funds could be helpful for you in case you are planning to create an emergency fund as they do not involve a lock-in period. You can pull out your money at any given time.

5. Portfolio Allocation

The investment goal of any investor is directly associated with their portfolio. The best liquid funds will be suitable based on investors’ financial health and gaps in their portfolios.

When to Invest in the Liquid Funds?

  • According to Financial experts, the right time to invest in these funds is when investors wish to park their idle cash for the short term and want to earn a decent amount on the return.
  • When you want to use the accumulated corpus to meet your short term financial goals.
  • One can also use the STPs- Systematic Transfer Plan to use the accumulated capital in liquid funds for the SIP instalment of any of the equity funds. It will help to generate a good return and alleviate the market’s volatility in the long term.


Liquid funds are similar to mutual funds; these are invested in securities that mature within three months, i.e. 91 days. These do not have any lock-in period so that one can process the redemption within 24 hours. Also, there are less risky and have higher returns as compared to the Saving Accounts and Fixed Deposits.


1. Does Liquid Funds have an exit load?

No, there is no exit load on these funds.

2. Is there any risk involved while investing in the liquid funds?

It offers low risk, but that does not mean that these are completely risk-free. As these are mainly invested in the debt fund thus, one can expect a credit risk and rate risk. Your fund manager will reduce the credit risk by assuring a well0diversified portfolio with securities.

3. Is there any lock-in time for liquid funds?

No, liquid funds do not have any lock-in period. One can process the redemption request of the same in 24 hours.

4. Are liquid funds tax-free?

Liquid funds are taxed like debt funds. If the investment on the liquid fund is held for over three years, then it would be subjected to capital gains which will be taxable at 20% with indexation.

5. Which is the best liquid fund in India?

Aditya Birla Sun Life Money Manager Fund – Direct Plan-Growth, and others listed above are the best liquid funds in India since these offer higher return rates.

6. How can you invest in liquid funds?

Various online platforms such as Groww, Zerodha and many other online platforms help you invest in suitable liquid funds.

Garima Kaushis

Garima Kaushis

Garima is an enthusiastic writer from Gurgaon. Her content holds value and information which is sourced from her long writing experience. Through her writings, you can explore vistas over wide range of topics. She loves to share her experience and bond with people around her. Her favorite leisure day would include shopping, reading book, good food and movies.

More Posts

Garima Kaushis

Garima is an enthusiastic writer from Gurgaon. Her content holds value and information which is sourced from her long writing experience. Through her writings, you can explore vistas over wide range of topics. She loves to share her experience and bond with people around her. Her favorite leisure day would include shopping, reading book, good food and movies.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.