Liquid Funds for Indian Investors: Tips Aiming to Optimize Probable Performance

One of the major advantages of liquid funds is that you can get almost instant access to your money with a feature known as Instant Access Facility. This facility is subject to maximum Rs. 50,000 or 90% of latest value of investment in the scheme, whichever is lower. This limit is applicable per day per scheme per investor. Offering this facility is at the discretion of the AMC.

In other cases of redemption requests, as per SEBI prescribed timelines, the redemption is processed within 3 working days. 

Liquid funds are suitable for those who want to park surplus cash without locking it for a long time.

Furthermore, liquid mutual fund schemes charge exit loads for a period of 7 days on graded basis. This means you can withdraw/ redeem your units without exit load after 7 days. 

Fund managers of liquid schemes try to invest in securities that are high rated for their liquidity. The goal is to try and keep the chance of default low.

As an investor, you can note that in liquid funds, capital protection is the main priority, while returns come second. Since the investments are short-term and from reliable borrowers, the risk of illiquidity may be low compared to other types of debt funds.

(An open ended Liquid Scheme. A Relatively Low Interest Rate Risk and Moderate Credit Risk)

Tata Liquid Fund is an open-ended liquid scheme. It is a relatively low interest rate risk and moderate credit risk liquid mutual fund following the benchmark - “CRISIL Liquid Debt A-I Index”. The fund seeks to invest in debt securities of companies after checking several factors, such as:

• Quality of the company’s management
• Financial track record
• Industry position and future growth prospects
• Liquidity of the securities

The idea is to choose companies that are strong and capable of meeting their debt obligations on time. For more clarity, let’s check out some key features of the Tata Liquid Fund:

The portfolio of the Tata Liquid Fund mainly consist of high-quality and investment-grade securities. These are bonds or debt instruments that have been rated by agencies as safe with low probability of Credit risk. 

In some cases, the fund may also invest in unrated securities (those not rated by credit agencies). However:

• If it invests in such unrated instruments, it needs to obtain prior approval from the Asset Management Company (AMC) Board and Trustees.

The only exception is Government Securities (sovereign bonds), which are considered safe by default.

As on 31/07/2025, the risk-o-meter of Tata Liquid Fund is under the category “Low to Moderate Risk” and carries relatively:

• Low interest rate risk 

  and

• Moderate credit risk 

Exit load is a small fee charged by a mutual fund if you withdraw (redeem) your money within a specified number of days. It is calculated as a percentage of the amount you withdraw. Check out the exit load structure of Tata Liquid Fund:

Disclaimer: The views mentioned above are for information & educational purposes only and do not construe to be any investment, legal, or taxation advice. Investors must do their own research before investing. The views expressed in this article are personal in nature and in is no way trying to predict the markets or to time them. Any action taken by you on the basis of the information contained herein is your responsibility alone, and Tata Asset Management Pvt. Ltd. will not be liable in any manner for the consequences of such action taken by you. Please consult your Mutual Fund Distributor before investing. The views expressed in this article may not reflect in the scheme portfolios of Tata Mutual Fund. There are no guaranteed or assured returns under any of the schemes of Tata Mutual Fund.

Liquid fund returns are usually modest and come from interest income on short-term securities. As an investor, you may not expect very high growth from liquid funds. However, they aim to offer you regular income for Short term. 

Still, to make the most from your liquid fund investments, you can follow these tips:

#Tip 1: Hold Funds to At Least Avoid Exit Load

Liquid funds charge exit loads on graded basis and there is no exit load if you keep your investment for atleast 7 days. For example, if you invest in any Liquid Fund, it’s best to keep the money for at least 7 days to avoid paying any exit load.

#Tip 2: Look for Expense Ratio

While comparing the different liquid mutual fund options, you can check the expense ratio (the cost of running the fund). A low expense ratio ensures that most of the income generated flows back to you.

#Tip 3: Use Liquid Funds As a Temporary Option

You can use liquid mutual funds as a temporary place to hold money while waiting for better opportunities. For example:

• Say you plan to invest in equities or long-term fixed income funds.
• Now, you can first park the money in liquid funds. 

This technique  aims to earn competitive returns  as compared to leaving cash idle in a savings bank account. However, the risk involved with liquid funds are also higher.

#Tip 4: Gradually Shift Money from Liquid Funds

You can also use liquid funds for Systematic Transfer Plans (STP). In these plans, your money is gradually moved from liquid funds into equity mutual funds. 

This approach can allow you to spread out investments into equities instead of putting in the 100% amount at once.

Liquid mutual funds are short-term debt schemes that carry low to moderate to Moderate risk and offer high liquidity. They can be an useful choice for parking surplus money. While their returns are modest, as an investor, you can improve outcomes by comparing expense ratios and staying invested for at least the minimum period to avoid exit loads. 

Among the available options, you can also consider the Tata Liquid Fund. This scheme offers a portfolio of several investment-grade securities, which carry a relatively low interest rate and moderate credit risk. The minimum investment amount you need to start investing is ₹100 in the SIP mode and ₹5,000 as a lump sum.