If you are worried about market volatility and want to keep your money safe and liquid, then liquid funds are a worthwhile option.
Even for investors with a high-risk appetite, it makes sense to hold some money in a liquid fund.
Even legendary investor Warren Buffett invests a portion of his portfolio in short-term US treasuries.
Liquid funds are a meaningful way to get a diversified exposure to short-term debt and other money market instruments.
These funds will keep your money in low-risk, short-term, money market assets that have a maturity of up to 91 days.
Liquid funds also give you the ability to quickly allocate your money into high-risk assets like stocks at an opportune time.
In this article we will cover the top 5 liquid funds in India.
But first…
What are Liquid Funds?
Liquid funds are open-ended debt mutual funds which have the investment objective of providing investors with capital preservation and liquidity.
These funds invest your money in Treasury bills (T-bills), call money, repurchase agreements, short-term debt securities issued by the government, certificates of deposits (CDs), commercial papers (CPs), and term deposits.
These underlying securities carry low-interest rate risk and low credit risk. Thus, compared to other types of mutual funds, liquid funds carry the least risk.
Their performance is benchmarked against the Crisil Liquid Debt Index and/or Crisil 1-year T-bill Index.
What Kind of Returns Can You Expect from Liquid Funds?
Liquid funds, in general, prioritise safety and liquidity over returns.
The main investment objective of a liquid fund is the preservation of capital… not generating high returns.
The 1-year returns of liquid funds is 7%, while the 2-year compounded annualised returns or CAGR is 6.8% as of 29 May 2025.
This is higher than the interest rate on a savings account.
Which are the Top 5 Liquid Funds?
#1: Edelweiss Liquid Fund
This scheme was launched in September 2008 and has assets under management (AUM) of Rs 34 billion (bn). The expense ratio is under 0.09% under the direct plan.
As per its April 2025 portfolio, Edelweiss Liquid Fund holds nearly 60% of its portfolio in CPs. These is debt of private firms looking to raise short-term capital.
This scheme holds 17% of its assets in CDs issued by private and public sector banks. Corporate debt comprises around 2% of the assets, having an AA and equivalent rating. 20% of the assets are in T-bills and a little over 1% is held in cash & cash equivalents.
The fund currently has 77% of its assets in debt papers maturing in 1 to 3 months, 15% maturing in one month, 6% in 3 to 6 months maturity, and 1.5% in other maturities.
The average maturity of the fund is around 51 days. Average maturity means the weighted average maturity of all debt securities in the fund’s portfolio.
The fund’s 1-year return is 7.49% and a 2-year CAGR is 7.25%, which are above the category average.
#2: Aditya Birla Sun Life Liquid Fund
This scheme was launched in March 2004 and has an AUM worth Rs 539 bn as per April 2025 portfolio. The fund expense ratio under the direct plan is 0.21%.
It has 90% of its assets in CPs and CDs, of which 59% is in CPs and the remaining 31% is in CDs. All 27 CPs and CDs in the portfolio have AAA & equivalent ratings.
Corporate debt from banks and non-banking financial companies (NBFCs), comprise 1.4% of the fund’s assets. T-bills and government securities (g-secs) comprise 12% and 4%, respectively.
77% of Aditya Birla Sun Life Liquid Fund’s portfolio is of 1 to 3 months maturity. 6% is of 3 to 6 months maturity, and around 16% is of 1-month maturity. The average maturity of the fund is around 44 days.
The fund’s 1-year return is 7.46% and a 2-year CAGR is 7.26%, which are above the category average. The fund has also outperformed the Crisil Liquid Fund Debt Index.
With high exposure to CPs and CDs, the fund has exposed its investors to slightly higher risk in the liquid fund category.
#3: Bajaj Finserv Liquid Fund
Bajaj Finserv Liquid Fund was launched in July 2023 and its AUM is Rs 44 bn. The expense ratio is 0.11%.
This fund holds 77% of its assets in CPs and CDs. All 49 such securities have AAA & equivalent ratings.
Corporate debt from banks and NBFCs, with AAA ratings, is around 6% of the portfolio. T-bills are around 15% of the portfolio and the remaining is held in cash & cash equivalents.
This makes the fund slightly riskier compared to the ones holding T-bills and other sovereign-rated papers. That said, the fund is following its mandate of investing in money market and debt securities with a maturity of 91 days. The average maturity of the fund is 44 days.
The 1-year return of the fund is 7.46%, which is higher than the category peers and the Crisil Liquid Fund Debt Index.
#4: Mahindra Manulife Liquid Fund
This fund was launched in July 2016 and its AUM is around Rs 13.14 bn. The expense ratio is 0.15%.
As per the April 2025 portfolio, Mahindra Manulife Liquid Fund holds nearly 76% in CPs and CDs. All 78 such securities have AAA & equivalent ratings.
AAA-rated corporate debt is around 4% of the portfolio. T-bill and government securities are 15% and 4%, respectively. Around 1.5% is held in cash & cash equivalents.
75% of the fund’s assets mature in 1 to 3 months. The average maturity of the portfolio is around 47 days.
The fund’s 1-year return is 7.45% and a 2-year CAGR is 7.24%. It has outperformed the category average and the Crisil Liquid Fund Debt Index.
#5: Axis Liquid Fund
This fund was launched in December 2012 and has an AUM of Rs 391 bn. The expense ratio is 0.09%.
As per the April 2025 portfolio, Axis Liquid Fund is holding 81% of its assets in CPs and CDs comprising 87 such securities all of which are AAA & equivalent rated.
AAA-rated corporate debt is a little over 3% of the portfolio issued by banks and NBFCs. T-bills and government securities are about 12%. Around 3% of the fund’s assets are in cash & cash equivalents.
The fund holds 80% of its assets maturing in 1 to 3 months. The average maturity of the portfolio is 44 days.
The 1-year return and 2-year CAGR are 7.45% and 7.22%, respectively. It has outperformed the category average and the Crisil Debt Fund index.
What to Keep in Mind When Considering Liquid Funds?
It would be incorrect to assume liquid funds are risk-free or safe. The net asset value (NAV) is marked-to-market, so it can and does fluctuate.
Thus, consider schemes that hold a portfolio of high-quality, liquid assets that delivers returns better than a savings bank account.
Also, the expense ratio of a liquid fund should be low so that the fund’s expenses don’t eat into its returns.
Liquid funds may be considered for an investment horizon of a few months to around a year or so.
The capital gain at the time of redemption will taxed as per your income-tax slab.
Holding an optimal amount, as per your needs, in a liquid Fund can help you tackle contingencies as and when they arise.
Be a thoughtful investor.
Happy investing.
Disclaimer
This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…
The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary
Notes: Rolling period returns are calculated using the Direct Plan-Growth option. Returns over 1-year are compounded annualised.
The schemes selected here are as 1-year returns. Please note, that returns here are historical returns as of 29 May 2025. Past performance is not an indicator of future returns.
Risk is assessed based on Standard Deviation. Risk-adjusted returns are measured on Sharpe Ratio and Sortino Ratio. They are calculated over a 1-Yr period assuming a risk-free rate of 6% p.a
The list of schemes is not exhaustive.
The securities quoted are for illustration only and are not recommendatory.
Speak to your investment advisor for further assistance before investing.
Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully.
Data Source: ACE MF