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What is Liquid Fund?

Liquid funds are mutual funds that invest their corpus predominately in money-market instruments with a maturity period of less than 91 days. These instruments could be certificates of deposit, treasury bills, commercial papers or other short-term debt security. These funds do not have a lock-in period and withdrawals are processed within 24 hours. The NAV for these funds is calculated for 365 days, and not for business days only like in other mutual funds. Liquid funds carry a low interest risk as they are primarily made up of fixed income securities. These funds do not have any entry or exit load as well.

Types of liquid funds

Liquid funds, predominately, invest in three types of money market instruments. These are:

1. Certificate of Deposit (CD)

These are time deposits with scheduled commercial banks. They differ from fixed deposit in that these cannot be withdrawn before maturity.

2. Commercial Paper (CP)

These are promissory notes or unsecured debt issued by companies with a high credit rating.

3. Treasury Bills (T-bills)

These are short-term debt instrument issued by the government. They earn the risk-free rate of interest which is lower than all other instruments.

Short term liquid funds maintain their liquidity as they invest only in short-term instruments with no exit load. This allows such funds to be close to cash.

Benefits of investing in liquid funds

How to invest in liquid funds?

Investing in liquid mutual funds is now an easy process with reliancesmartmoney.com . If you are KYC compliant, you can directly open your investment account online, compare and choose the fund of your choice. Or else, you can complete your kyc process with reliancesmartmoney.com and open your account to start investments.