Liquid Mutual Funds

A liquid fund may own only debt and money market securities, and every one of them must mature within 91 calendar days. A security matures on the date the borrower repays the fund.

A mutual fund is a pool of money from many people, invested by a professional manager under SEBI rules. SEBI is the market regulator. A debt fund puts that pool into debt: loans to governments, banks or companies, in the form of bonds and similar paper.

Money market instruments are short-term loans in paper form. SEBI's regulations say they include:

• commercial papers and commercial bills;
• treasury bills (T-bills);
• government securities (G-secs) with up to one year left to run;
• call or notice money;
• certificates of deposit;
• usance bills;
• any other similar instrument that the Reserve Bank of India (RBI) specifies.

The list is open. A liquid fund can buy any of these, provided each one matures within 91 days.

The fund must also keep at least 20% of its net assets (the fund's total value) in cash, G-secs, T-bills and repo on G-secs. Repo on G-secs means short loans backed by government securities. Most other open-ended debt funds need only 10% in such assets.

SEBI's risk-management framework for liquid funds, dated 20 September 2019, adds two bans:

• Structured obligations or credit enhancements. This is debt whose repayment depends on extra support arrangements, not only on the borrower. A liquid fund may not buy it.
• Bank term deposits. A liquid fund may not park money in bank fixed deposits (FDs).

One more limit covers every debt scheme. No more than 20% of net assets may go into a single sector, meaning one industry. G-secs, T-bills, bank certificates of deposit and a few other kinds of paper are left out of that count.

A liquid fund is open-ended. You can sell your units whenever you like, and there is no lock-in (a spell when you are not allowed to sell).

At most 0.0070% of the money you take out, and nothing from day 7. Every liquid fund must charge an exit load if you leave within 7 calendar days. An exit load is a fee some funds charge if you sell within a set time after buying.

The schedule is graded. AMFI, the mutual fund industry's association, set it with SEBI. The load is a percentage of your redemption proceeds, which is the money you take out.

Every liquid fund charges this same schedule. It cannot be changed without consulting SEBI, and AMFI reviews it with SEBI once a year. The scheme document, the fund's official rulebook, is still where you confirm it.

In rupees: suppose you invest ₹2,00,000 and redeem all of it on day 3, when it is still worth about ₹2,00,000. The load is 0.0060% of that, so ₹12. Sell on day 1 and it is 0.0070%, or ₹14. Wait until day 6 and it drops to ₹9. From day 7 you pay nothing.

Within 3 working days on a normal redemption, and partly on the same day if your fund offers instant access. Redemption is selling units back to the fund. SEBI's rule is that the money must be paid within 3 working days.

The Instant Access Facility is faster. SEBI allows it only in liquid and overnight schemes, and it pays the money the same day. Its conditions are fixed:

• it works online only;
• it is open to resident individuals only;
• you can take ₹50,000 or 90% of the latest value of your investment in that scheme, whichever is lower;
• the cap runs per day, per scheme, per investor.

Say your holding in one liquid fund is worth ₹40,000. 90% of that is ₹36,000, which is below ₹50,000. So ₹36,000 is the most instant access can pay you that day.

If the same holding were worth ₹3,00,000, 90% would be ₹2,70,000. The ₹50,000 cap is lower, so ₹50,000 is that day's limit in that scheme. Once a holding reaches about ₹55,556, the ₹50,000 cap is the lower one.

The limit counts scheme by scheme. Hold units in two liquid schemes and each has its own daily limit.

Its value can fall, because a liquid fund is valued at market prices. Each holding is priced at the average of what valuation agencies quote for it, not at a fixed book value. So the fund's value moves with the prices of what it holds.

The riskometer is the risk label SEBI makes every fund show, on six levels from Low to Very High. Most listed liquid funds read Low to Moderate on 29 September 2026, and a few read Moderate.

SEBI's formula scores a debt fund's holdings on three risks:

• credit risk, the chance that a borrower pays late or does not pay back;
• interest-rate risk, the chance that a change in interest rates changes the value of what the fund holds;
• liquidity risk, the chance that the fund cannot sell a holding quickly at a fair price.

Paper that matures within 91 days scores 1, the lowest, on interest-rate risk. A credit rating is a grade an agency gives a borrower's paper. Paper rated AAA or A1+ scores 1 on credit risk. Lower grades score more: AA+ gets 2 and AA gets 3. Liquidity scores 1 to 3, depending on whether the paper is listed. For AAA or A1+ paper, the result lands around Low or Low to Moderate.

The label is not fixed. The fund works it out again each month and discloses it within 10 days after the month closes. If it changes, investors hear by email or SMS and through a public notice.

As your distributor, Koshex reviews what you hold over time and flags a shift like this one.

For units bought on or after 1 April 2023, the whole gain is taxed at your slab rate. That is the income-tax rate on your ordinary income. The holding period does not change that. The holding period is how long you have owned a unit, from the day you bought it to the day you sell it.

Under section 76 of the Income-tax Act, 2025, a Specified Mutual Fund has more than 65% in debt and money market instruments. A liquid fund meets that test. So every gain on its units bought on or after 1 April 2023 counts as a short-term capital gain. Normally that term means profit on units sold soon after purchase.

The gain below is assumed, not a forecast. Suppose you bought liquid fund units in July 2025 and sell them in September 2026 for a gain of ₹18,500. We assume no surcharge, an extra charge on the tax itself once total income passes ₹50 lakh. Cess is an extra 4% charge on the tax.

• At a 20% top slab, for units bought on or after 1 April 2023 and no surcharge: tax is ₹3,700, cess ₹148, total ₹3,848.
• At a 30% top slab, same units and no surcharge: tax is ₹5,550, cess ₹222, total ₹5,772.

The 30% slab starts above ₹24,00,000 of income under the default regime. Under the old regime it starts above ₹10,00,000.

A resident who redeems has no TDS cut from the payout. TDS is tax deducted at source, before money reaches you.

Units bought before 1 April 2023 follow the older rules. If such units are sold within 24 months, the gain is taxed at slab rate. Pre-April 2023 units kept longer are taxed at 12.5%, without indexation, the old inflation adjustment.

IDCW is money the fund pays out from its income or gains. Each payout lowers the NAV, the price of one unit, by the same amount. You pay tax on IDCW at your slab rate. For IDCW above ₹10,000, the fund first deducts 10% TDS. TDS is credited against your tax for the year. Where it is more than your final tax, the extra is refunded. The growth option pays nothing out.

A bank deposit and a liquid fund run on different rules, starting with insurance. DICGC deposit insurance covers bank deposits up to ₹5 lakh per depositor per bank. That limit counts the money you put in and the interest on it together, across all branches of the bank.

A liquid fund is a market investment. Its value moves with the prices of what it holds.

On tax, a liquid fund's gain is taxed only when you redeem. For units bought on or after 1 April 2023, it is taxed at your slab rate.

A normal redemption must reach you within 3 working days. If you leave within the first six days, the graded exit load applies. From day 7 it is nil.

Koshex suggests a liquid fund for money you may need within days to a few months. Picture money set aside for a flat's registration charges next quarter, or a term's school fees. It is not a suggestion for goals years away.

Koshex is a distributor, a registered intermediary that helps you buy and manage funds. It helps you choose a fund that suits your goal and timeline.

Four columns matter most: 3-year and 5-year CAGR, the expense ratio, AUM and the riskometer. There are 39 listed liquid funds, and 35 of them have a 3-year record. Those are ranked on 3-year return and counted in the averages.

• CAGR over 3 and 5 years. CAGR is the average yearly growth rate over a period. It treats the fund as if it grew at the same pace every year. Set a fund's figures beside the category averages: 6.5% over 3 years and 6.6% over 5. The 1-year average is 6.4%.
• Expense ratio. The fund's yearly fee, shown as a percentage of your money and taken out of the fund's value.
• AUM. Assets under management: the current total value of the money a fund manages. All listed liquid funds together manage ₹7,22,445 Cr.
• Riskometer. A few listed liquid funds read Moderate on 29 September 2026. Check the level shown against each scheme.

These figures describe the past, not what comes next.

Cash set aside for a short spell often arrives in one go, as a lumpsum: a larger amount invested at one time. A SIP works as well: investing a fixed amount at regular intervals, usually monthly. Each instalment buys units at that day's NAV and has its own holding period. Units bought today all fall after 1 April 2023, so slab-rate tax applies to every one of them.