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Liquid funds: Are they a stable investment option?

Liquid fund
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The right investment decision is not about choosing the 'best' fund, instead, it's about identifying investment options that suit your risk appetite and align with your financial goals. One such investment avenue is liquid funds. But what are liquid funds and how ‘stable’ are they? Let's find out!

  • Table of contents
  1. What are liquid funds?
  2. Evaluating the stability of liquid funds
  3. Role of liquid funds in portfolio diversification
  4. Who should invest in liquid funds?
  5. Bajaj Finserv AMC
  6. FAQ

What are liquid funds?

Liquid funds are a type of debt mutual funds that invest in short-term market instruments like treasury bills, and government securities with a maturity period of up to 91 days. Highly rated instruments make liquid fund investment a relatively stable option in the volatile market.
While they may not offer substantially high returns like some other aggressive investment options, liquid funds provide potentially steady returns and swift liquidity, making them an attractive investment avenue.

Evaluating the stability of liquid funds

Liquid funds primarily invest in debt and money market instruments with short maturities, which reduces the interest rate risk. This means that even if the interest rates in the economy fluctuate, the net asset value (NAV) of liquid funds is less likely to be affected compared to long-term debt funds.
Moreover, the credit risk associated with liquid funds is relatively lower as they mostly invest in securities with high credit ratings. However, this does not eliminate the risk completely. Like any other investment option, liquid funds come with a degree of risk, and it is essential to consider this before investing.
Liquid funds may not guarantee fixed returns, but they tend to provide relatively better return potential compared to keeping your money idle in a savings bank account.

Role of liquid funds in portfolio diversification

Liquid funds can play a crucial role in portfolio diversification. When you diversify your investments across different asset classes, it helps to spread the risk. As a result, losses in one asset class can be offset by gains in another. Investing a portion of your portfolio in liquid funds can provide relative stability, especially in volatile market conditions. They also ensure easy accessibility to funds in case of a sudden financial requirement, thereby serving as an emergency fund. Liquid funds also provide insta redemption facility that allows investors to withdraw a maximum of Rs. 50,000 or 90% of invested amount within minutes,

Who should invest in liquid funds?

Liquid funds are suited for investors who have surplus funds and short-term financial goals. They can also be a choice for those seeking to park their money temporarily before deciding on other long-term investment avenues.

Bajaj Finserv AMC

Bajaj Finserv AMC has recently introduced the Bajaj Finserv Liquid Fund, which is designed to cater to various financial objectives while adhering to limited impact on capital invested, low to moderate risk, and high liquidity. This fund primarily invests in money market and debt securities with a maturity period of up to 91 days. With a modest minimum application amount of Rs. 1,000, liquid fund presents an option for corporates seeking efficient management of short-term cash flows as well as individual investors looking for alternatives to traditional savings accounts.
Additionally, Bajaj Finserv AMC has also launched the overnight fund, money market fund, and flexi cap fund. However, it is always wise to seek professional advice from a financial advisor or distributor to ensure that your investment aligns with your financial objectives, risk tolerance, and investment horizon.

In the world of investments, investors are often at the lookout for stable investment options. In this regard, liquid funds, with their low/low-to-moderate risk, reasonably steady returns, and high liquidity, have emerged as a preferred option for investors. However, as with any investment decision, it's essential to understand the product and evaluate it against your financial goals and risk appetite.


What are liquid funds?

Liquid funds are a type of mutual fund that primarily invests in short-term debt securities, offering high liquidity and low/low-to-moderate risk compared to other investment options.

Are liquid funds stable?

Generally, liquid funds are considered low/low to moderate risk due to their short investment horizon and high-quality debt securities. However, like all investments, they carry some level of risk.

What returns can I expect from liquid funds?

Liquid funds aim for relative stability rather than high returns. Investors can expect modest returns, that generally tends to be higher than traditional savings accounts.

How do liquid funds compare to other investment options?

Compared to stocks or long-term funds, liquid funds offer lower returns but relatively better stability and liquidity, making them suitable for parking surplus funds or emergency savings.

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 an 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.