What are liquid funds?
As per Securities & Exchange Board of India (SEBI) guidelines, liquid funds are mutual funds that invest primarily in debt and money market securities with a maturity/residual maturity of up to 91 days. Accordingly, such funds may invest in money market securities like Certificates of Deposits (CDs), Treasury Bills (T-Bills), Commercial Papers, etc.
Advantages of liquid funds
No exit load for an investment of 7 days or more
There is a staggered exit load structure for liquid fund redemptions in case of investments held less than 7 days. This is as prescribed by SEBI. In the case of a holding period of seven days or more, the exit load is zero.
Liquidity
Liquid funds derive their name from the convenience of liquidity, as their redemption requests are processed faster. Redemption requests received by the mutual funds before the cut-off time on a working day are processed for redemption credit to the registered bank account by the next working day.
Are liquid funds safe?
When it comes to investing in debt funds, investors are primarily exposed to two kinds of investment risks – credit risk and interest rate risk. Credit risk refers to the risk of default by the issuer entity, which means that such an entity is unable to honour its interest and repayment obligations on due dates. When the issuer entity does not meet such debt servicing obligations, the valuation loss on such securities directly impacts the scheme returns.
Since liquid funds invest primarily in sovereign and money market instruments with a maturity of up to 91 days only, the risk of default is minimal.
Further, owing to a short duration of up to 91 days, the impact of interest rate movements on the overall investment portfolio is less. Thus, liquid funds carry relatively lower interest rate risk. Therefore, with minimal credit and interest rate risks, liquid funds may be considered a relatively safe investment option in the debt mutual fund category.
It may further be noted that a larger share of liquid funds' AUM stems from institutional and corporate investors using such funds to manage their short-term surplus funds and working cash flow requirements.
Investing in liquid funds
You may invest in liquid funds by physically submitting the application forms at any Official Point of Acceptance (POA) for the mutual fund house or the Registrar & Transfer Agent (R&TA). Another option is digital investment, i.e., through the website/ mobile apps of the mutual fund house or R&TA.
Additionally, you can make regular investments in liquid funds through a Systematic Investment Plan (SIP), thereby building a good corpus for contingency requirements over time.
Disclaimer
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
To know about the KYC documentary requirements and procedure for change of address, phone number, bank details, etc. please visit https://www.utimf.com/servicerequest/kyc. Please deal with only registered Mutual funds, details of which can be verified on the SEBI website under "Intermediaries/market Infrastructure Institutions". All complaints regarding UTI Mutual Fund can be directed towards service@uti.co.in and/or visit www.scores.gov.in (SEBI SCORES portal). This material is part of Investor Education and awareness initiative of UTI Mutual Fund.
