How to Invest in Liquid Mutual Funds

You can choose a Systematic Investment Plan (SIP) to invest in liquid funds. With a SIP, you can select the frequency of your investments, and the money will be automatically deducted from your bank account.
Investing in Liquid Funds
3 min
12-Feburary-2025

You can invest in liquid mutual funds in several ways: directly from the issuing company, through a trusted platform like Bajaj Finserv, or by opting for a Systematic Investment Plan (SIP). A SIP allows you to invest regularly by automatically deducting a fixed amount from your bank account at chosen intervals, making it a convenient way to grow your investment steadily.

Investing your hard-earned money wisely is crucial for financial stability. Liquid mutual funds offer a safe and convenient option for short-term investments. Whether you are a seasoned investor or new to the financial world, understanding how to invest in liquid mutual funds is essential.

What are liquid funds?

Liquid funds are a type of mutual fund that mainly put money into short-term money market instruments with maturities of up to 91 days. These funds are known for being low-risk because they invest in highly liquid instruments like treasury bills, certificates of deposit, and commercial papers, among others. Compared to other mutual funds, the instruments in liquid funds tend to be less volatile. They aim to provide easy access to cash and preserve capital over short periods, making them attractive to investors with extra funds they want to park temporarily.

These funds are regulated by the Securities and Exchange Board of India (SEBI) to ensure they invest in highly liquid and high-quality securities. Moreover, they must maintain limits on exposure to each issuing entity and follow strict investment guidelines.

How to invest in liquid funds?

Step 1: Verify your details for KYC Compliance

  • Tap on ‘Invest Now’ to get started.
  • Enter your PAN, Name, Date of Birth (as mentioned in your PAN card).
  • Agree to the Mutual Funds Terms of Use.

Step 2: Email Verification

  • Once you pass KYC compliance, move on to verify your email.

Step 3: Update your Bank Details

  • Enter your Account Holder Name, Account Number, IFSC code, and Account Type.
  • We will deposit Rs. 1 to confirm your account.

Step 4: Enter Basic Details

  • Gender
  • Occupation
  • Pin Code
  • Address

Step 5: Upload your Signature

  • Upload your signature to be used for your account opening process.

Step 6: Complete the Nominee & FATCA details for your portfolio

And you’re done!

You can now select your choice of funds, choose the investment mode (SIP/ Lumpsum) and payment mode (Net banking, UPI, NEFT/ RTGS).

Invest Online or Offline

1. Offline Mode

Investors can invest in liquid funds by filling out application forms and submitting them physically at any Official Point of Acceptance or POA for the mutual fund house or, the Registrar & Transfer Agent or R&TA.

2. Online Mode

Online investing has revolutionized mutual fund investments, allowing investors to buy liquid mutual funds with a simple click. There are two primary ways to invest online:

  • Invest through platform provided by the fund house: Asset Management Companies or AMCs offer online platforms for investors to buy, sell, and manage their investments. However, these platforms may lack comprehensive features and investment advice.
  • Invest through platform provided by your broker: Many brokers like the Bajaj Finserv platform provide online platforms that offer access to multiple AMCs and additional services such as investment advice, portfolio management, and consolidated reports.

How do Liquid Funds Work?

  • Liquid Mutual Funds are a type of debt funds which mainly invest in short-term money market instruments with maturities of up to 91 days.
  • They aim to offer investors a safe and easily accessible investment option.
  • When you invest in a Liquid Mutual Fund, your money joins a pool with other investors, managed by a fund manager.
  • These investments provide stable returns and high liquidity, making them ideal for storing extra funds, emergency funds, or short-term financial goals.
  • Investors have the flexibility to redeem their units at any time.

Benefits of Liquid Funds

  1. Potential for better returns: Liquid funds offer competitive returns compared to traditional savings accounts.
  2. No exit load for an investment of seven days or more: Investors can access their funds without incurring additional charges after seven days.
  3. Liquidity: Investors can redeem their investments quickly, making liquid funds ideal for short-term financial needs.
  4. Low risk: Liquid funds invest in high-quality, short-term instruments, reducing the risk of capital loss.

Thing to keep in mind before investing in Liquid Mutual Funds

Before investing in liquid funds, consider the following factors:

1. Cut-off timing

When investing in liquid mutual funds, it is important to stick to the cut-off timing. This timing determines which day's Net Asset Value (NAV) will apply to your purchase or redemption.

  • For investing in liquid mutual funds, the cut-off time is 1:30 pm. Investing before this time means you'll be eligible for historic NAV (T-1 day). Also, for historic NAV the funds need to be credited to mutual fund scheme account prior to the cut off. Investing after 1:30 pm means you'll get the next business day's NAV.
  • For redemption, the cut-off time is 3:00 pm. Redeeming before this time gets you the same day's NAV, while redeeming after means you'll get the next business day's NAV.

2. Taxation

Taxation for liquid funds follows debt taxation rules. If you redeem your investment before holding it for 36 months, you'll pay short-term capital gains tax based on your tax slab. However, if you redeem after holding it for 36 months, you'll pay a long-term capital gains tax of 20% with indexation applied. Dividends received from liquid funds are also taxable for individual taxpayers according to their applicable tax slabs.

3. Exit loads

Liquid funds may have exit loads for investments redeemed within a specified period, usually seven days.

Conclusion

In conclusion, investing in liquid mutual funds online provides individuals with a convenient and secure way to grow their wealth while preserving capital. By understanding the basics of liquid funds and following simple investment strategies, anyone can take advantage of this accessible investment opportunity.

Essential tools for all mutual fund investors

Mutual Fund Calculator

Lumpsum Calculator

Systematic Investment Plan Calculator

Step Up SIP Calculator

SBI SIP Calculator

HDFC SIP Calculator

Axis Bank SIP Calculator

ICICI SIP Calculator

Nippon India SIP Calculator

ABSL SIP Calculator

Groww SIP Calculator

LIC SIP Calculator

Frequently asked questions

How long should I stay invested in Liquid Mutual Funds?

Liquid funds are suitable for short-term investments, typically ranging from a few days to a few months.

Where do Liquid Mutual Funds invest?

Liquid funds primarily invest in short-term highly liquid debt instruments like treasury bills, certificates of deposit, and commercial papers, among others

Who should invest in Liquid Funds?

Liquid funds are suitable for investors seeking low-risk investment options with short investment horizons.

How much return can you expect from Liquid Funds?

Returns from liquid funds vary based on market conditions but generally offer competitive returns compared to traditional savings accounts.

Is it good to invest in liquid mutual funds?

Liquid mutual funds invest in high-quality debt securities with short maturity periods, typically up to 91 days. Due to their short tenure, these funds have minimal exposure to interest rate fluctuations, making them a suitable option for conservative investors seeking stability and low risk in their portfolio.

Is SIP allowed in liquid funds?

Yes, Systematic Investment Plans (SIPs) are allowed in liquid funds. Since these funds offer high liquidity, investors can quickly redeem their investments when needed. This makes SIPs in liquid funds an excellent choice for short-term cash management while ensuring steady returns.

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Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.