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Whether you are an active investor, or just looking to park your funds somewhere it can grow while still being accessible, liquid funds can be a great option. They can be used for various purposes, from building an emergency fund to increasing your savings while taking advantage of market trends. In this guide, we cover what liquid funds are, how they function and how you can invest in the best liquid funds.
A type of debt fund, liquid funds are mutual fund schemes that primarily invest in assets that are safe and have high liquidity. This is ideal for investors who are looking for short term and stable returns on their investments. It is common for active investors to have liquid mutual funds as a part of their mutual fund portfolio for diversification and balance.
Investments made by liquid funds are made in securities with shorter maturities and comparatively stable values:
These financial instruments have a maturity of up to 91 days, however, an investor can continue to stay invested in the Liquid mutual fund even after the maturity period.
Liquid Funds aim to provide returns with minimal risk by investing in high-quality instruments, here’s a brief overview of how Liquid Funds, as a type of debt funds function:
If you are considering investing in Liquid Funds, it’s important to know the features of this mutual fund and how it fits in your overall portfolio:
Short Term Investment: If you are looking to grow your investments with a shorter horizon, Liquid Funds invest in securities that mature in less than three months. Therefore, you can see a steady increase in your investments with minimal market risks.
High Liquidity: One of the main advantages of liquid funds is that they make your investment accessible, in most cases your redemption requests can be processed within 24 hours of a business day.
Low Risk: Liquid funds are a good choice for investors who have low to moderate risk appetite as these mutual funds only invest in securities like treasury bills, government bills and other short-term securities.
No Exit Load (Typically): Liquid funds are not as actively managed as other debt mutual funds, which is why these funds have lower expense ratios leading to more returns on your investments.
Better Returns than Savings Account: Liquid mutual funds generally offer better returns than savings accounts since these mutual fund schemes invest in money market instruments with short-term maturity. This gives it the advantage to get higher interest rates while maintaining liquidity.
Tax Efficiency (for Holding Over 3 Years): If the units are sold or redeemed within three years of purchase, the gains are taxed as per the income tax slab rate of the investor.
Liquid funds are ideal for individuals and entities who:
Also Read: Best Tax-Saving Mutual Funds & Investment Options 2025
While Liquid Funds are positioned to be a safe choice for investors, it’s important to note that it is not risk-free. Here are some risks you should be aware of when investing in Liquid Funds:
To optimize your investments in Liquid Funds, it’s important to know the taxation and the fees applicable to Liquid Fund investments.
Your liquid assets are subject to holding period taxation in 2025. Here’s a breakdown on how liquid fund investments are taxed as per the current tax regime:
Type of Income
Holding Period
Tax Rate
Short-Term Capital Gains (STCG)
Up to 3 years
Taxed as per investor’s income tax slab.
Long-Term Capital Gains (LTCG)
More than 3 years
Taxed at a flat 12.5% without indexation
Dividends
Any
Taxed at investor’s income tax slab rate.
To help you in identifying the best liquid mutual funds, refer to this list of top liquid mutual funds for 2025 based on publicly available rankings.
Fund Name
Launch Year
AUM (Rs bn)
Expense Ratio (%)
Major Holdings (% in CPs/CDs)
Avg. Maturity (Days)
1-Year Return (%)
2-Year CAGR (%)
Edelweiss Liquid Fund
2008
34
0.09
77% (60% CPs, 17% CDs)
51
7.49
7.25
Aditya Birla Sun Life Liquid Fund
2004
539
0.21
90% (59% CPs, 31% CDs)
44
7.46
7.26
Bajaj Finserv Liquid Fund
2023
0.11
77% (CPs & CDs)
-
Mahindra Manulife Liquid Fund
2016
13.14
0.15
76% (CPs & CDs)
47
7.45
7.24
Axis Liquid Fund
2012
391
81% (CPs & CDs)
7.22
Please Note:
Liquid Funds is a good alternative if you want to invest in a low-risk asset with exposure to market trends or balance your portfolio. Being aware of its features and how it functions will help you to make smart investments.
With DBS Treasures, you can grow your wealth in a safe and secure way. You can even consider opening a DBS Bank premium savings account and leverage the benefit of a dedicated team of relationship managers and wealth experts.
To manage your investments and remittances smoothly, opening an NRI Savings Account with DBS can help you seamlessly invest in liquid funds while enjoying expert wealth management and global banking convenience.
Disclaimer: The information provided is for informational purposes only and should not be construed as financial advice. Please consult with a financial advisor before making any investment decisions.
