Liquid Fund
Mutual fund for parking money short-term.
What does it mean? (Simple)
A liquid fund is a type of debt mutual fund that invests in very short-term instruments (like treasury bills, commercial paper). It's designed for parking money for days to weeks.
The main benefit is quick access: you can withdraw money within 1-2 business days (some funds offer instant redemption up to ₹50,000).
Returns are usually 4-6%, slightly better than a savings account, but not guaranteed like FD.
Example with ₹ numbers
You park ₹2 lakh in a liquid fund while deciding where to invest. After 3 months, you earned approximately ₹3,000 in returns and can withdraw anytime.
Common mistakes to avoid
- ⚠️Expecting high returns (it is for safety, not growth)
- ⚠️Not understanding exit load (some funds charge for early exit)
- ⚠️Using for very short periods where savings account is simpler
Related terms
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⚠️ Educational only: This explanation is for learning purposes. Please consult a financial advisor for personalized advice.