As per SEBI (Securities & Exchange Board of India) guidelines on mutual fund schemes’' categorisation, liquid funds are debt funds that invest primarily in debt and money market securities with a maturity of up to 91 days. Accordingly, such funds invest in Treasury Bills (T-Bills), Commercial Papers (CP), Certificates of Deposit (CD), etc.
Liquid funds derive their nomenclature due to the liquidity offered to the investors, as the redemption for liquid fund units is processed faster than in other mutual fund schemes. Any redemption request placed before the cut-off time on a business day is processed for credit to the investor's bank account on the next working day. Presently, the cut-off time for redemption requests of liquid funds to be processed on the same day is 1.30 PM. Therefore, you need to place a redemption request before 1.30 PM on a working day to receive the redemption proceeds in the registered bank account on the following working day.
Due to the inherent advantages and conveniences of investing, liquid funds have an approximately 10% share in the total mutual fund industry assets with an AUM of Rs. 3.76 lakh crore as of April 30, 2022.
Source: Association of Mutual Funds in India – AMFI.
