What are Liquid Funds? What are the benefits of investing in Liquid Funds?

What are Liquid Funds? What are the benefits of investing in Liquid Funds?

Liquid funds are a type of mutual funds that invest in securities with a residual maturity of up to 91 days. Assets invested are not tied up for a long time as liquid funds do not have a lock-in period.

  1. No lock-in period: Withdrawals from liquid funds are processed within 24 hours on business days.
  2. No entry and exit load: Unlike FDs, there is no penalty for exiting or breaking them.
  3. Lowest interest rate risk: Lowest interest rate risk because of high liquidity
  4. Taxation: Dividends received are tax-free. However, taxation is applicable on capital gains.
  5. Diversification: Investing a certain portion of your excess cash in liquid funds helps you to meet emergency expenses and shield yourself from volatility of equity investments.
  6. NAV of liquid fund doesn’t fluctuate much as other funds.
  7. Unlike other debt funds where NAV is calculated only for business days, NAV for liquid funds is calculated for 365 days.

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