Fund categories, explained

Liquid funds
for cash you’ll need soon.

A liquid fund lends for up to 91 days at a time, to the government, banks and large companies. It is where many businesses keep cash they will need in the coming weeks and months.

Book a review call Typical returns

Liquid funds, at a glanceAMFI data, 30 Oct 2026

6.3% over the past year

The typical (median) return of 37 regular-plan funds, all fund houses

Typical, 3 years: 6.8% a year
Typical, 5 years: 6.3% a year
Funds counted: 37

Taxed only when you sell

Money back the next business day

The basics

What is a liquid fund?

Invests in debt and money market securities maturing in up to 91 days.SEBI’s definition of the category

What it holds

Treasury bills issued by the government
Certificates of deposit issued by banks
Commercial paper issued by companies
At least 20% in cash, government securities and repos, held to meet redemptions

Who it can suit

A business’s cash for salaries, suppliers and taxes over the next few months
Money between two decisions: a maturing FD, a sale, a bonus
An emergency buffer alongside, not instead of, a bank balance

Comes up most in Corporate Treasury

Side by side

Liquid funds or an FD?

Neither is better in general. It depends on when you need the money and what you can live with along the way.

Liquid funds compared with a fixed deposit
Compare	Liquid fund	Fixed deposit
Return	Moves with short-term rates	Fixed for the term
Tax	Only when you sell, at your slab rate	Interest taxed every year, at your slab rate
Getting it out	Next business day; a tiny charge only in the first 6 days	Breaking it early usually costs interest
Safety	Not guaranteed or insured; very short loans to strong borrowers	Insured up to ₹5 lakh per bank (DICGC)

Before you invest

Risks, tax and getting your money out.

The risks, plainly

Not guaranteed. A borrower defaulting, though rare in this category, can cut the fund’s value.
Returns move with short-term interest rates: when rates fall, so does what the fund earns.
Each scheme shows its riskometer and Potential Risk Class; check both before you invest.

How it’s taxed

Gains are taxed at your income-tax slab rate when you sell, however long you have held the units (for units bought from April 2023). There is no tax while you hold them: unlike FD interest, nothing is taxed until you redeem.

Tax rules change with budgets. We go through the current position with you and your CA.

Getting your money out

Redemptions reach your bank account the next business day.
For resident individual investors, many liquid funds offer instant redemption of up to ₹50,000 a day (or 90% of your holding, if lower). Companies and firms redeem the normal way.
A small exit load applies only if you sell within six days of investing; none after that.

Typical returns

What the category has returned.

The median return of every liquid fund's regular plan, across all fund houses, from AMFI’s published NAVs as of 30 October 2026. Half the funds did better, half did worse.

Over 1 year

6.3%

Median of 37 funds

Over 3 years, a year

6.8%

Median of 34 funds

Over 5 years, a year

6.3%

Median of 32 funds

Regular plans, growth option, which include the distributor’s commission. Returns over a year are yearly averages (CAGR). Past returns of a category, not a recommendation of any scheme: past performance may or may not be sustained in future, and what suits you depends on your goals and a suitability check. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

FAQs

Your questions about liquid funds.

Are liquid funds safe?

They are among the lowest-risk mutual funds, not risk-free. They lend for no more than 91 days, mostly to the government, banks and large companies, and must keep a fifth of their money in cash and government securities. But they are not guaranteed or insured, and a borrower defaulting can reduce the value.

Liquid fund or FD: which is better for a business?

It depends on when you need the money. For cash needed in the next few months, a liquid fund can be withdrawn the next business day with no charge after the first week, and is taxed only when sold. An FD gives a fixed rate and deposit insurance. Many businesses keep both; the treasury calculator shows how much of your cash isn’t needed soon.

Can a company invest in liquid funds?

Yes. Companies, LLPs and partnership firms can invest in their own name, usually with a board resolution or partners’ authorisation and the entity’s KYC. Your bank relationship stays as it is.

When do I get my money back?

Redemptions are paid the next business day. Resident individual investors can also use instant redemption, where the scheme offers it, of up to ₹50,000 a day or 90% of the holding if that is lower.

Is there an exit load on liquid funds?

Only in the first six days. SEBI set a small, falling exit load for redemptions within six days of investing; from the seventh day there is none.

Can liquid funds give negative returns?

Rarely, and usually only over a day or two: a sharp jump in short-term interest rates, or a borrower defaulting, can push the value down. Over weeks and months the category has usually ended higher, but that is not guaranteed.

Liquid fund or sweep FD?

A sweep FD moves the balance above a set level into an FD automatically, and back when you need it; its interest is taxed every year. A liquid fund needs a redemption request, is credited the next business day, and is taxed only when you sell. Many businesses use the sweep for the operating float and a liquid fund for cash not needed for a few weeks.

Can I redeem a liquid fund on a weekend?

You can place the request, but it is processed on the next business day and paid the business day after. Instant redemption of up to ₹50,000, for individual investors where the scheme offers it, is the exception. Plan weekend and holiday needs a day or two ahead.

Liquid fund or savings account?

A savings account is for money you spend: you can withdraw it at once, and deposits are insured up to ₹5 lakh per bank. A liquid fund suits a larger buffer you won’t touch for a few weeks; it is not insured, takes a business day, and is taxed only when you sell.

Fund categories

Compare it with similar categories.

Overnight fundsInvests in overnight securities, maturing in one day.Read more Money market fundsInvests in money market instruments maturing in up to one year.Read more Arbitrage fundsFollows an arbitrage strategy, with at least 65% in equity and equity-related instruments.Read more

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Liquid funds for cash you’ll need soon.