Published: 02nd Jan 2025
By: Value Research
A liquid fund is a debt mutual fund scheme. They invest in short-term money market instruments such as treasury bills, certificates of deposit and commercial papers, which typically mature within 91 days. Here's a quick guide to pick the right one.
Expense ratio–fee charged by funds for managing your money–impacts your returns. The average expense ratio of liquid funds is 0.15 per cent. The range typically varies from 0.07 per cent to 0.25 per cent. Lower costs mean more money in your pocket!
Choose liquid funds investing in high-rated instruments (AAA or A1+). As of November 2024, 58 per cent of liquid fund assets were in AAA-rated equivalent securities and 12 per cent in risk-free sovereign instruments.
Bigger funds often mean better efficiency. Mid to large-sized funds can spread investments across more high-quality securities and manage liquidity better. They're able to meet redemption demands without compromising on portfolio quality.
While generally stable, liquid funds can occasionally dip. While these instances are rare, reviewing how a fund performed during such periods can give you confidence in its stability.
Don't chase returns alone—they're usually similar across liquid funds (current median: 7.17 per cent). Focus on consistency and safety. Remember, capital preservation and easy liquidity are your main goals with liquid funds.
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