I want to know what type of investments mutual fund companies make in liquid funds. And how safe is it to invest in liquid plans?
-SPS Jain
SEBI’s recently changed laws pertaining to liquid funds, which have been applicable for nearly 1.5 years, say that liquid funds cannot invest in papers with a maturity of more than 91 days.
No mutual fund can give you a guarantee of returns or the safety of your principal, but till now, since the first liquid fund was launched in 1997, there hasn’t been a fall in the value of liquid funds for even one day. The experience has been that there hasn’t been even a one paisa drop in the value of liquid funds, even on an overnight basis. This makes liquid funds reasonably safe. But, they are not deposits and don’t guarantee returns. However, under the changed regulatory framework, which is more stringent, liquid funds have become safer than they were three years back.
This article was originally published on December 12, 2011.
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