Best Liquid Funds- Best Performing Liquid Mutual Funds to invest in 2020

Best Liquid Funds - Consider the best performing liquid mutual funds to invest in 2020 with Find the list of best liquid funds in India on the basis of Returns, Latest Nav, Ratings, Performance etc

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Best Liquid Fund

Better than savings deposit

  • point

    Higher returns compared to bank account

  • founder-logo

    Axis Liquid Fund Growth

    • Debt
    • Liquid
    ₹ 25,859.54 Cr
    Fund Size
    ₹ 0
    Min Investment
    10+ Yrs
    Return (1yr)
  • founder-logo

    Tata Liquid Fund Regular Growth

    • Debt
    • Liquid
    ₹ 13,488.95 Cr
    Fund Size
    ₹ 1,000
    Min Investment
    15+ Yrs
    Return (1yr)
Emergency Fund
Better than savings deposit
  • 6-8%
    Growth Rate
  • No lock-in

Higher returns compared to bank account


Withdraw money in just 1 working day.

What are Liquid Mutual Funds?

Liquid mutual funds are high liquidity open-ended income schemes. These funds invest in short term market instruments such as treasury bills, commercial paper, government securities, fixed deposits, other debt securities. These instruments have maturity up to 91 days.

Liquid mutual funds are considered to be a safe option to invest the surplus money lying in the savings bank account. Since the maturity period is less, they mitigate interest rate volatility risk. The credit risk or risk of default in repayment is also very low on liquid funds.

NAV for liquid funds is calculated for 365 days whereas for other funds NAV is calculated only for business days. The units of liquid funds are allocated as per the previous day’s NAV. The NAV of liquid funds does not fluctuate much as compared to other funds.

What are the Advantages of Investing in Liquid Mutual Funds?

Liquid funds are considered as a better and safe option for investing surplus funds and mostly compared to its counterpart i.e. savings account balance. Liquid funds carry a lot of benefits for an investor and become an ideal investment option.

The advantages are listed below:

Fixed returns

The liquid fund invests in instruments which offer fixed interest rate and hence the returns received by an investor from liquid funds are also fixed. On maturity, an investor received the principal amount invested and the returns earned.


Due to the short term maturity of the instruments in which the fund invest, liquid funds become highly liquid. An investor can anytime wish to withdraw the amount invested. The withdrawal request is processed within 24 hours of request raised. There is no lock-in period on liquid funds.

No exit load

Unlike fixed deposits and other funds on the category of mutual funds, no exit load is applicable to liquid funds. No exit load is charged if the investment is withdrawn after 7 days of investment.

Low risk

The risk profile of liquid funds is low because of the below reasons

  • - Low-interest rate volatility risk since the fund is highly liquid and shorter maturity.
  • - Since the maturity is up to 91 days only, the NAV of the underlying assets does not fluctuate much.
  • - The credit risk or risk of default in repayment of principal amount and returns are also very low on liquid funds provided an investor invest in AAA or AA+ rated funds
  • Higher returns

    Liquid funds offer higher returns when compared to its counterpart mode of investment i.e. savings bank account balance, fixed deposit.

    While its counterpart offers 4% to 5% returns, the liquid fund has delivered more than 7% historically.

    Due to the above advantages, liquid funds have gained popularity in recent years amongst retail investors.

    Who Should Invest in Liquid Mutual Funds?

    Liquid funds are ideal for an investor who has some spare cash for a short period and wants to earn a return higher than bank interest on savings bank account balance. An investor must park some emergency funds with himself as the redemption will be processed on the next working day.


    An investor received Rs 100,000 as a bonus from his employer in May. He has a LIC premium due in July end. Now the funds are parked idle for him and he will need it in 2 months. Either he can invest in FD and lock-in his funds or park in a savings bank account. Both the options will fetch him a return of not more than 5%. Here he can think of liquid funds as a better option and invest for 2 months. This will fetch him higher returns with the freedom to withdraw anytime without any early exit fee.

    How are Liquid Mutual Funds Taxed?

    The tax implications on liquid mutual funds depend on the duration of the investment. The duration over which an investor stays invested is called holding period

    A capital gain arises from liquid mutual funds. A capital gain is taxed based on the period of holding of the investment.

    Short term capital gain arises when the period of holding is less than years. Long term capital gain arises when the period of holding is more than 3 years

    Short term capital gain will be added to an investor’s total income and taxed at slab rate

    Long term capital gain is taxed at a rate of 20% after indexation.

    What are the Things to Consider as an Investor?

    Fund objectives

    Liquid funds are less risky when compared to similar funds in the category. The maturity of underlying assets is up to 91 days. Due to which the NAV does not fluctuate much as it is prevented from the price fluctuations of the underlying assets.

    Expected returns

    Liquid funds have delivered returns of more than 7% in the past. And these returns are anytime higher than a savings bank account and fixed deposits which offer a 4% to 5% return. Since liquid funds are highly liquid, interest rate fluctuation risk is very low.

    But NAV of liquid funds can drop significantly and unexpectedly. This can happen due to a decline in the credit risk rating of the underlying assets in the fund. Hence liquid funds are not completely risk-free.


    A fee known as expense ratio is charged to manage the investments in liquid funds. As per SEBI guidelines, the expense ratio must be under 2.25%. Liquid funds maintain a lower expense ratio to offer a higher net return to an investor over a short period.

    Investment horizon

    Liquid funds are ideal for an investor who wishes to invest his surplus funds for a shorter period say up to 3 months. This investment horizon helps to utilize the full potential of the underlying securities.

    If an investor wishes to invest for a period say up to 1 year, he must consider investing in ultra-short-term funds to get relatively higher returns.

    How to Choose the Best Liquid Mutual Funds?

    Historical Performance

    The historical performance of a liquid fund is an important parameter to consider while selecting the appropriate liquid fund to invest in. A liquid fund that has performed well in the past, beating its benchmark and performing better than funds in the same category is a better option to invest. This liquid fund can be expected to perform well in the future as well.

    Credit Score

    The credit score is a rating provided by credit risk scoring agencies like Crisil to cover default risk of repayment of principal amount and return earned.

    A higher credit risk score like AAA, AA+ ensures the credit risk is minimized. The risk of default in payment is low for the underlying assets in the fund with a high credit score

    Maturity of the portfolio

    An investor must choose the fund for which the maturity period matches his financial objective. If an investor chooses to invest for a period of 3 months or less than a liquid fund is a better option. An investor with an investment objective up to 1 year he may consider investing in ultra short -term liquid funds.

    A liquid mutual fund with a shorter maturity period is considered to have a lesser interest rate volatility risk.

    Top Best Liquid Mutual Funds

    Fund Name 1-year return 3-year return
    Tata Liquid Fund Regular Growth 6.28% 6.80%
    Axis Liquid Fund Growth 6.31% 6.85%

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