The Wealth Company Liquid Fund

Liquid mutual fund schemes invest in debt and money market instruments having a maturity profile of not more than 91 days. Investments are made in sovereign instruments such as Treasury Bills, Central Government Securities, State Government Securities, Certificate of Deposits issued by banks, Commercial Paper Instruments issued by corporations other than banks, and Tri-Party Repo / Repo instruments.

Liquid mutual fund schemes are best suited for a duration of at least 7 days and are ideal for investors who need to park funds for basic needs such as emergency / contingency fund, tuition, travel, medical, etc., or can also be used for strategic investment purposes such as systematic transfer plans (STFs) for staged or staggered deployment of funds to equity or other mutual fund schemes. In the case of corporates, the benefits accrue in the form of treasury solutions such as dividend distribution staging, treasury management for routine gaps, etc.

In terms of risk return profile, traditional savings products (savings account and term deposits) are at the bottom, i.e., least return and lowest risk, and them comes liquid funds, debt funds with a duration up to 1 year, debt funds with duration over 1 year, and hybrid and equity funds. So, while term deposits offer fixed returns, liquid mutual fund schemes have higher liquidity, and in the case of savings account the said scheme has the potential to offer better returns. While returns are not guaranteed, but generally liquid mutual fund schemes have higher probability of outperformance over traditional savings products, and unlike fixed deposits, liquid mutual fund schemes do not have a lock-in period, thus offering greater flexibility. We have looked at the various rolling returns of the CRISIL Liquid Fund Index for this purpose going back over more than a decade. We find that the occurrence of less than 0% return over seven days is virtually negligible, and conversely, the occurrence of more than 4% returns of a seven-day period is around 84.2% (Source: Data for Crisil Liquid Debt Index from 1st January 2015 to 17th July 2025). Please note that, Past performance may or may not be sustained in the future.

Liquid mutual fund schemes returns are influenced by prevailing market conditions, monetary environment, and interest rates. One must note that past performance is not reflective of the future performance given the varying interest rate environment. But generally, liquid mutual fund schemes have the potential to offer higher returns than savings accounts owing to the varied basket of debt instruments that the fund house can invest in. Liquid Funds have a graded exit load of up to 6 days and no exit load from the 7th day.

Liquid mutual fund schemes are relatively secure due to investments in high-quality, short-term debt instruments issued by the government or reputable corporations. As per regulatory guidelines, minimum 20% of the net assets of the scheme are invested in “sovereign rated” debt instruments such as Treasury Bills, Tri-Party Repos, Central Government Securities, and State Government Securities. That said, one must also look at the credit quality of the underlying securities within the fund’s portfolio. While these funds typically invest in high-quality debt instruments with low credit risk, it is essential to check their credit ratings.

Before investing one must look at the following factors: . Risk and Returns: Assess the fund’s risk and return profile to ensure it aligns with your investment options and risk tolerance. Liquid funds generally present low-risk investment opportunities. . Expense ratio and other costs: Evaluate the expense ratio and any additional costs associated with the liquid schemes such as exit loads. Liquid Funds have a graded exit load of up to 6 days and no exit load from the 7th day, as these factors can influence overall returns. . Liquidity of the fund: Assess the liquidity of the liquid fund to ensure it can meet your redemption needs effectively. . Investment Horizon: Liquid funds are categorized under debt mutual funds and having investment horizon of security which have maturity of up to ninety-one days. Because they have such a short investment horizon, liquid funds might be a good investment option for someone who wishes to invest in funds that come with a short maturity period.

Capital gains arising from redemption of units in the liquid mutual fund scheme shall be added to the overall gross taxable income of the person and taxed as per applicable tax slab rates. That said, investments made prior to April 01, 2023, and investment holding period is more than 2 years, then gains will be taxed as long-term capital gains at a flat rate of 12.5% without indexation benefits, and if held for 2 years or less, the gains will be taxed as short-term capital gains at the applicable slab rates. In case of dividend distribution by the liquid fund scheme, the dividends are added to an investor's taxable income and taxed according to their income tax slab rate; the dividend distribution will be subjected to a 10% tax deduction at source (TDS) if dividend amount exceeds Rs. 5,000 in a financial year. (Taxation as per prevailing Tax rules)

In terms of liquidity, usually T+1 settlement is followed for redemptions, however up to Rs. 50,000 (per folio per investor per day) or 90% of the amount in the folio, whichever is less, can be redeemed instantly i.e. T+0 settlement under Instant access facility.

Investing in liquid mutual funds is a relatively simple process: . Through mutual fund distributors: Investors can invest via registered mutual fund distributors or financial advisors who provide guidance and assist with the application process. . Directly through asset management companies (AMCs): Many asset management companies, allow direct investments through their websites or mobile apps. This option can potentially help investors save on distributor commissions. . Online platforms: Various online platforms and mobile apps facilitate mutual fund investments. These platforms provide an easy way to compare and invest in different liquid funds. The steps involved are: . KYC compliance: Ensure KYC requirements are met, as they are mandatory for all mutual fund investments. . Choose the platform: Choose the mode of platform for investments. . Make the investment: Decide on the investment mode (lump sum or SIP) and proceed with the payment.