Liquid fund – A liquid fund is a type of mutual fund that invests money from a bank certificate of deposit; Bank fixed deposits, treasury bills, bill rediscounting, commercial papers, collateralized borrowing and lending liabilities and other debt securities for 91 days.

The NAV of the funds calculated for 365 days, unlike other debt mutual funds, where the NAV is calculated only for business days.

NAV applied at the end of the application day for other debt funds received within the cut-off period (3.00 p.m.), which valued at up to Rs.2 lakhs. For applications above Rs.2 lakhs, the allocation of units is subject to receipt of funds within the cut-off period (i.e., 3.00 p.m.).

However, in the case of liquid funds, a cut-off time (up to 2.00 pm) is obtained for all transactions (regardless of the value of the investment), where the money is still allocated within the cut-off time, the units have been assigned as per NAV on the previous day.

Let us assume that the purchase of liquid funds has been requested before 2.00 pm. on Monday. The amount will also realize at 2.00 pm. On Monday, then NAV of Sunday is applicable.

Similarly, when a request for redemption submitted before the time of deduction on Friday, the NAV for recovery applies on Sunday, i.e., one day before the next business day. That means your investments generate returns for every single day of investment. 

Who can invest in liquid funds?

The popular theory is that your IDLE money invested in liquid funds. How long IDLE is, however, you should understand. You have to decide based on the time horizon. A day’s idle money is different from a year’s idle money.

There are some suggestions that we need to use liquid funds to maintain our emergency fund. But in my opinion, really liquid or otherwise liquid property. Because if you apply for redemption (before the cut-off time), cash will credit on the next working day.

Some funds give you withdrawal cards, but there are other caps on withdrawals.

Therefore, I suggest you park all 100% in the liquid fund instead of the parking portion of your emergency fund.

Nevertheless, saving for your short term goals is the best idea to use liquid funds. You can expect better returns (4 percent) than your savings account — some liquid money generated between 8% and 9% and some money between 5%.

And we believe that the efficiency of liquid funds is higher than your savings account.

Since liquid funds invest in short maturity papers, the volatility is very low. We also invest in high-grade credit paper (higher than rated AA), which ensures that the default risk is too shallow.

Therefore, you can claim maximum protection; the primary reason for investing in a liquid fund is higher expectations from your savings account. 

Happy investing – hope it will help you!