Educational guide
Liquid Mutual Funds — Better Than Savings Account?
Liquid funds are the cleanest place to park surplus cash — earning 6.5–7.0% with T+1 redemption and very low credit/duration risk.
// what liquid funds invest in
Money-market instruments maturing within 91 days — T-bills, CPs, CDs and short-term Government securities. SEBI-mandated category.
// returns and risk
Annualised returns track the RBI repo + a small spread, currently around 6.8–7.0%. Credit risk is minimal (top-rated short paper) and interest-rate risk is negligible due to the 91-day cap.
// tax treatment
Post Apr-2023 purchases are taxed at slab rate. Use a savings account for very short parking (< 30 days) and liquid funds for 30+ day surplus where the 50–100 bps yield pick-up matters.
// frequently asked questions
Yes — SEBI permits up to ₹50,000 or 90% of folio value as instant redemption with same-day credit. Beyond that, T+1 settlement applies.