Liquid funds are a type of debt funds which invest in treasury bills, commercial papers, bank fixed deposits, etc. The maturities of all these in a liquid fund is up to 90 days. When you invest your money in a liquid fund, the same is lent by the mutual fund to institutions such as banks and corporates.
Important Points to Know about Liquid Funds
- If you want to invest for a short period i.e. from 1 day-6 months, liquid funds are the best option.
- One can view these as an alternative to keeping money in a savings bank a/c where you get 3-4%, whereas liquid funds tend to offer 5%-7% return
- There is no lock-in period, so you can withdraw anytime.
- There are no exit loads in liquid funds, when one withdraws no amount is deducted by the AMC.
- Liquid funds have the lowest cost amongst all mutual fund schemes. They carry an expense ratio of only 0.05-0.20%. This could vary for different liquid funds of different asset management companies.
- The risk or probability of default is minimal in a liquid fund since these funds lend money to highest rated corporates and banks.
- Every mutual fund company has a liquid fund, so there are more than 40 liquid funds. We help you know the best amongst them.
5 Best Liquid Funds
Basis the performance, risk metrics and the expense ratio, these are the returns for last 1, 3 and 5 years (in % terms)
|Fund Name||Last 1 Year||Last 3 Years||Last 5 Years|
|ICICI Liquid Fund||5.82%||6.70%||7.04%|
|Axis Liquid Fund||5.87%||6.77%||7.08%|
|Nippon Liquid Fund||5.88%||6.76%||7.08%|
|Tata Liquid Fund||5.99%||6.83%||7.14%|
|Aditya Birla Liquid Fund||5.89%||6.75%||7.08%|
As we can see, there is not much to choose in terms of returns. They are almost similar; we would recommend you pick up any two or three of these and divide your money equally among them.