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Liquid Funds: Liquid Mutual Fund Investment in India

What are Liquid Funds?

Liquid Funds are debt funds which invest in securities with a residual maturity upto 91 days. Liquid funds invest in debt and money market instruments such as Certificate of Deposit(CD), Commercial Paper(CP), Treasury Bills(T-bills), etc with residual maturity of 91 days only. They aim at providing a high degree of liquidity to investors and are considered one of the safest funds among mutual fund categories.

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Why invest in Liquid Funds?

  • High liquidity with no lock in period- Liquid funds do not have a lock-in period. Investors can choose to redeem their investments whenever they want.
  • Low risk- Owing to the short term nature of the underlying securities, liquid funds have one of the lowest interest rate risk as compared to other debt funds.
  • Easy redemption- Liquid mutual funds are highly liquid and can be easily redeemed. Redemption requests are usually processed within one working day. Most liquid funds also offer instant redemption access facility on withdrawals up to Rs.50,000/- per day per scheme per investor.
  • Potential for better returns- Liquid funds have the potential to generate better returns than savings account.

How are liquid funds taxed?

Liquid funds are taxed like any other debt funds. If liquid funds are held for less than 3 years, then the gains will be calculated as Short Term Capital Gains (STCG) and will be taxed according to the investors income slab. Whereas, if they are held for more than 3 years, it will be calculated as Long Term Capital Gains (LTCG) and taxed at 20% along with the benefit of indexation.

SBIMF Liquid Funds

Instant Redemption

SBIMF offers the instant redemption facility in SBI Liquid Fund. The facility is offered to resident individual investors of SBI Liquid Fund which endeavour to credit redemption proceeds to the registered bank account of the investor within few minutes on the same day from the time of receipt of Instant Redemption request, using Immediate Payment Service (IMPS) provided by various banks. Maximum limit for instant redemption is upto ₹50,000 or redeemable balance whichever is lower, per day per scheme per investor.

The investor needs to make a redemption request on the SBIMF website or the mobile application to avail this facility.

Instant Redemption

Frequently asked questions

  • Liquid Funds are debt funds which invest in short term fixed income generating securities with a residual maturity upto 91 days. They are an ideal option to park excess idle cash. Liquid funds have many benefits over F.D-
  • High liquidity- Liquid funds as the name suggests are highly liquid and can be redeemed at any time unlike F.D where you have to break the entire amount if you choose to withdraw before its maturity.
  • Potential for better returns- Liquid funds have the potential for better returns which can beat inflation unlike Fixed Deposits which give a fixed rate of return.
  • No exit load- Liquid funds if redeemed after 7 days have no exit load unlike Fixed Deposits which charge a penalty if the amount is withdrawn before its maturity.
  • Flexibility- Liquid funds have the flexibility of Systematic Investment Plan(SIP), Systematic Withdrawal Plan(SWP) , Systematic Transfer Plan(STP).

Liquid funds are taxed like any other debt funds. If liquid funds are held for less than 3 years, then the gains will be calculated as Short Term Capital Gains (STCG) and will be taxed according to the investors income slab. Whereas, if they are held for more than 3 years, it will be calculated as Long Term Capital Gains (LTCG) and taxed at 20% along with the benefit of indexation.

The returns on liquid funds are market-linked, so there is a possibility that liquid funds may give negative returns. However, that has rarely been the case as they invest in short term fixed income generating securities which have low risk.

Liquid funds invest in high credit quality debt instruments. The maturity of the underlying securities is upto 91 days only. This makes the fund highly liquid and safe with minimal capital risk.

The amount completely depends on the goals and the risk appetite of the investor. Liquid funds are an ideal option to park excess idle money instead of putting it into a savings bank account.

Yes, an investor can invest in liquid funds through SIP.

An investor can choose to withdraw money from liquid funds by filling in a transaction slip and requesting for a redemption subject to completion of KYC requirements. Alternatively, he can choose to redeem online through website of the mutual fund or through the mobile app.

Yes, an investor can invest in liquid funds through lumpsum as per the minimum investment size mentioned in the Scheme related Documents of the Scheme.

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