How to invest in liquid mutual funds

A liquid fund is a mutual fund scheme that invests in money market securities with a low maturity period of 91 days or less. These funds offer a safe and secure option for parking surplus funds or to set aside an emergency fund.


An investment in a liquid fund can be made with a minimum application amount as indicated in the scheme information.


The investor can make a fresh investment either by filling up an application form and issuing an investment cheque or making an online application using the mutual fund website portal or any other mutual fund transaction platform.


To be able to invest in a liquid fund, the investor should have KYC formalities completed with a KYC registration agency. A KYC form needs to be filled up and documents (address and identity proof) should be submitted, with originals for this purpose.

Cut off timings

Applications and payment received (funds available for utilisation) before 2 pm on a business day are eligible for NAV of the previous day. If the application is submitted and payment is received (funds available for utilisation) after 2 pm, the NAV of the same day is applicable.


In addition to normal modes of redemption available to mutual fund schemes, some liquid funds also allow any time redemption facility up to certain amounts.


Liquid funds are subject to taxation applicable to debt funds. If the liquid fund investment is held for more than three years, it is subject to long term capital gains which is taxable at 20% with indexation. If the investment is held for three years or less than that, the capital gain is taxed at the marginal (highest) tax slab rate applicable to the assessee.

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Points to note

  • Once done, KYC is valid across all mutual funds, one doesn’t need to repeat it for each investment.
  • Since the investment is made in short term debt and money market instruments, the risk profile of liquid funds is low.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)



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