How can liquid funds add value to your mutual fund portfolio?

liquid fund investment portfolio
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In the world of financial instruments and investment opportunities, novice investors often seek avenues that balance risk and reward. Among the many options available, liquid funds have emerged as a suitable option for many investors as these funds seek to offer liquidity, relative stability, and potential for returns. In this article, we will have a look at the three prominent benefits that make liquid funds a sought-after option for many investors. We will also check out the Bajaj Finserv Liquid Fund and evaluate its suitability for various investors.

Table of Contents

What is a liquid fund?

An open-ended scheme that invests in debt and money market instruments with a maturity period of up to 91 days is known as a liquid fund. Some of the common investment instruments of liquid funds include Certificates of Deposit (CD), commercial papers, treasury bills, government securities and bonds, and so on which have a maturity of upto 91 days. The aim of liquid funds is to get potentially stable returns on investment with relatively less impact of capital while offering high liquidity.

Who should invest in liquid funds?

You can consider adding liquid funds to your investment portfolio if:

  • You are new to mutual funds.
  • You prefer low-risk investments.
  • You have a short investment horizon.
  • You want an investment instrument that offers high liquidity.
  • You want to get relatively better returns than investing in traditional banking products.
  • You want to meet your financial goals like planning a vacation, buying furniture, etc.
  • You want to build an emergency fund.
  • You want to build a corpus to invest in an equity fund when the opportunity arises.

How to redeem liquid funds?

You can put a redemption request with your Asset Management Company (AMC) to get your money from your liquid fund investment. Per day, you can redeem up to Rs. 50,000 or 90% of the investment amount, whichever is lower. The amount is transferred instantly to your linked bank account through the IMPS (Immediate Payment Service) facility. For other amounts, the request is processed within one to two business days. This makes liquid funds as easy to redeem as withdrawing money from a bank account.

Benefits of adding liquid funds to your mutual fund portfolio

High liquidity: Liquid funds offer easy liquidation compared to most other types of mutual funds. The redemption process is also easy and fast. You can get Rs. 50,000 or up to 90% of the investment amount, whichever is lower, instantly when you place the redemption request, per day. Higher amounts also get redeemed within one to two business days making liquid funds a good alternative to fixed deposits.

Low risk: Liquid funds fall in the low-risk investment category on the riskometer. In fact, the main aim of these schemes is to reduce impact of volatility while earning potentially better returns than traditional banking products. When you invest in liquid funds, you can be certain that your investment faces negligible interest rate risk, credit risk and inflation risk, the three types of risks associated with mutual funds.

No entry load and low exit load: If you read the Scheme Information Documents (SID) carefully before investing, you will find that AMCs charge exit load on liquid funds. AMCs charge a nominal exit load if you redeem the units within 7 days of making the investment. This makes your investment relatively preferred than an FD since you are penalised for breaking an FD before its maturity date. However, you must note that unlike FDs, returns from liquid funds aren’t guaranteed and are subject to market volatility.

Always suitable: An investment in liquid funds can be made at any time. These schemes invest in investments over a short duration of less than 91 days, which means that you can just consult with your financial advisor and straightaway invest in liquid funds.

Why should you invest in Bajaj Finserv Liquid Fund?

Invest in the Bajaj Finserv Liquid Fund to geta relatively better return potential than savings accounts, Fixed Deposits (FDs) and other traditional banking products at a higher risk than banking products. This scheme invests in debt and money market instruments with a short maturity period of up to 91 days. It falls in the low-to-moderate risk category on the riskometer. It offers high liquidity and makes it easy to redeem your money just like a bank account. Additionally, you can get started with just Rs. 1,000.

Liquid funds are characterised by low risk and high liquidity in the short term. These funds bring an element of relative stability to any investment portfolio. The easy redemption process makes them the suitable place to park surplus cash instead of going for traditional banking products.


What role do liquid funds play in a diversified portfolio?
Liquid funds act as a relatively stable anchor in a diversified portfolio. They provide liquidity and less volatility, allowing investors to balance risk in their overall investment strategy.

Can I use liquid funds for systematic investments or withdrawals?
Yes, liquid funds can be suitable for systematic investment plans (SIPs) and systematic withdrawal plans (SWPs). They offer flexibility in managing cash flows within your mutual fund portfolio.

How do liquid funds contribute to risk management?
Liquid funds help manage portfolio risk by providing a cushion of relative stability compared with other mutual fund schemes. In volatile markets, they act as a relatively stable option while other fund categories may experience greater fluctuations.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.