Liquidity is crucial when it comes to investments. You never know when you might need quick access to your money. This is where liquid funds come in. Liquid funds are mutual funds that invest in short-term debt instruments i.e., Investments in Debt and money market securities with maturity of up to 91 days only. This can be the investment avenue for investors who want the exposure of fixed income instruments but with quicker liquidity. The maturity period of these instruments is usually up to 91 days. This can make liquid funds relatively less volatile compared to other types of mutual funds such as equity funds.

They do not have any restrictions on withdrawals or redemptions (there is an exit load charged for those who withdraw before 7 days). This is one of the reasons why many people prefer liquid funds they aim to offer greater flexibility while maintaining liquidity through daily transactions with investors.

Also Read - Exit Load in Mutual Fund: Meaning, Types, and Calculation

With effect from October 2019

How do Liquid Funds Work?

Liquid funds collect money from investors who want to park their money for a brief period of time. The fund manager then uses this money to buy short-term debt and money market instruments. The yield from these debt instruments is passed on to the investors in the form of returns.

features of Investing in Liquid Funds

There are several features of investing in liquid funds, which are as follows:

• • High liquidity

  
  – Investors can redeem their units on any business day. There is no exit load, which means you will not have to pay any charges for withdrawing your money after 7 days from the date of allotment.
  
  Must Read - What is Liquidity

• • Documentation

  
  – You only need your KYC documents to invest in a liquid fund. There is no need for elaborate documentation like you would need for other types of investments

Documents Required for Investing in a Liquid Fund

To invest in Liquid Fund schemes below details are required:

For Physical (Offline) Process
1. PAN has to be KYC & FATCA compliant
2. Scheme application form
3.Cheque or NEFT/RTGS transfer letter
4.Nomination form.

For Online Process
1.PAN has to be KYC & FATCA compliant.
2.Scanned image of the self-attested cancelled cheque/passbook/bank statement

Conclusion:

Investing in liquid funds can be one of the avenues to earn returns with quick liquidity and minimal risk. Remember to keep your KYC documents handy so that you can complete the investment process quickly and easily.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.