The Reserve Bank of India had, more than 2 years ago, deregulated the interest rates on savings deposits. However, this good news is restricted to paper only as 90% of the banks still offer a meager 4% compared to higher returns from top liquid funds.
There are a few banks which offer a higher interest rate on savings accounts but they usually ask for a high minimum deposit.
However, all these do not deter most of us from depositing a significant portion of our excess cash in the low-yielding bank savings accounts which eventually earns lower interest rates than the prevailing rate of inflation.
There are better options available like mutual funds for maintaining cash..
Liquid funds or money market funds can help us earn a much higher interest rate compared to the savings bank accounts without compromising on how quickly we can get real access to the cash.
If you want to know more about liquid funds, then continue reading after the below list of the best liquid funds. I have tried to explain in detail for your understanding…
Also read: Best tax saving mutual funds in India 2015-2016
TOP 5 BEST LIQUID FUNDS IN INDIA
Here is a list of the top 5 liquid mutual funds in India. These rankings have been arrived after consideration of a few essential parameters like
- The highest returns received in the last 3 years.
- Funds that are rated #1-3 by CRISIL
- Assets under Management or AUM > 1000 crores.
CRISIL Rank | Name | AUM | 1mnth | 3mnth | 6mnth | 1yr | 3 yr |
3 | SBI Premier Liquid – RP (G) | 5666.65 | 0.7 | 2.1 | 4.2 | 8.7 | 9.0 |
1 | ICICI Pru Money Market Fund (G) | 1922.00 | 0.6 | 2.0 | 4.2 | 8.8 | 9.0 |
1 | DSP-BR Liquidity Fund – IP (G) | 2450.45 | 0.6 | 1.9 | 4.2 | 8.8 | 9.0 |
1 | JP Morgan Liquid SIP (G) | 1110.61 | 0.6 | 2.0 | 4.2 | 8.8 | 9.1 |
2 | HDFC Liquid Fund (G) | 9437.68 | 0.6 | 2.0 | 4.2 | 8.8 | 9.1 |
- SBI Premier Liquid Fund
The SBI Premier Liquid Fund (Regular) is an open-ended scheme which was launched on March 23, 2007. The minimum investment is Rs 50,000 and last dividend amount was Rs 2.85 (as on April 06, 2008). It has changed the face value per unit from Rs 10/unit to Rs 1000/unit. It was earlier known as SBI Magnum Institutional Income – Savings Plan.
- ICICI Pru Money Market Fund
It is an open-ended money market fund that offers rewarding parking facility for short-term cash which is remaining idle. The cash can be withdrawn as and when required and it proves to be an investment through its earnings. The product is suitable for investors who are looking forward to short-term savings solution. It offers a low-risk option to invest in mutual funds. It has a high level of liquidity and offers the flexibility of cash access just when you need it. The application amount is set at Rs 5000 (additions in multiples of Re 1) and the minimum additional investment is Rs 1000 (additions in multiples of Re 1). There is no entry or exit load. The minimum redemption amount is Rs 500 (plus in multiples of Re 1). Systematic Investment Plan is now available on this plan.
- DSP-BR Liquidity Fund
The DSP-BR Liquidity Fund is one of the better performing liquid mutual funds in India. It is an Open Ended Scheme that helps to generate a reasonable return with very low risk but high degree of liquidity. The minimum investment amount is Rs 5000 . The scheme has been ranked #1 in the Liquid category by CRISIL and the rank has remained unchanged from the quarter ending December, 2014. My suggestion is that those of you who have already invested in this scheme should stay invested.
- JP Morgan Liquid SIP
The main objective of the JP Morgan Liquid SIP Plan is to afford reasonable returns coupled with low risk and very high level of liquidity through the portfolio of debt securities and money market. It is an open ended scheme and was launched way back in September, 2008. The minimum investment amount is Rs 10,000. The scheme has been ranked # 1 in the Liquid category by CRISIL and this is a huge improvement from the last quarter (Dec, 2014) where it was ranked No. 4.
- HDFC Liquid Fund
The primary objective of the scheme is to enhance the income and is consistent with high level of liquidity. It was launched in 2000 and is an Open Ended High Liquidity Income Scheme. The Dividend Plan offers Daily Dividend option with reinvestment facility. The weekly and monthly Dividend option has payout and reinvestment facility. There is no entry or exit load. The redemption proceeds are normally dispatched with 1 business day. The product is very much suitable for those investors who are seeking good income over a short term and who are looking for investments in the money market and debt instruments.
What is a Liquid Fund?
Liquid fund is a special category of mutual fund that invests primarily in various forms of money market instruments such as term deposits, commercial papers and certificate of deposits.
The underlying assets of these liquid funds have a lower maturity period (usually less than 91 days) which helps the fund manager meet the redemption demand of the investors and hence maintaining liquidity.
In fact, liquid funds and debt funds easily contribute more than 70% of entire mutual fund AUM in India. Currently the AUM of liquid funds is more than Rs 3 lakh crores.
Wikipedia article – What is a money market fund
‘Lock-in’ period for Liquid mutual Funds?
The majority of the funds have a lock-in period for a maximum of 3 days to give protection against banking glitches and redemption proceeds are offered within 24 hours.
However, there are some other funds which have a lock-in period of a week or even a month. But the tenure is always less than a conventional mutual fund. Hey, remember, the primary aim of using a liquid mutual fund is liquidity and better interest than savings account from banks.
Expense ratio of liquid funds
The management expense ratio for mutual funds vary between 1.5-3% for normal mutual funds. However, for liquid mutual funds it is typically 0.6-1%.
As you can see, liquid mutual funds have very low expense ratio. Expense ratio is nothing but amount charged by the fund house for managing your investments.
Benefits of liquid funds
- Nowadays the majority of the liquid mutual funds have no lock-in period.
- The withdrawals from these funds are processed within 24 hours (business days). The cut-off time for the withdrawals is set at 2 pm which basically means if a redemption request is made within 2 pm on a business day then the funds will get credited to your bank account within the next business day by 10 am.
- The liquid mutual funds enjoy the lowest rate of interest among all debt funds as it is primarily invested in fixed income securities with short maturity.
- There are no entry and exit loads for liquid mutual funds usually.
Tax Structure of Liquid Funds
If you are investing in a short-term fixed deposit then the returns will be taxable as per your tax bracket. This means that if you are in the highest slab of taxes then the majority of the returns from the fixed deposit would be gone.
But if you choose dividend option for the liquid funds then the returns will be free from any kind of tax. This is because liquid mutual funds already pay around 28.325% as dividend distribution tax. So you don’t need to pay any tax from your end if you choose dividend option.
If you choose growth option, then you will need to pay short term capital gains tax at 11.26% for holding less than 1 year. If held for more than a year, the tax rate comes to 22.2% with indexation benefits.
But if you choose a bank deposit, then the interest on your deposit will be taxed as per your income tax slab. Hence liquid fund is a very attractive option for people especially in high tax bracket(30%).
The returns from liquid funds
The good news is that in the past one year, some of the liquid funds have managed to offer equal or higher returns than the bank fixed deposits. However, unlike liquid funds, banks impose a penalty for premature withdrawal.

Source: www.moneycontrol.com
Why liquid funds have higher return?
Liquid funds are said to be very good short-term investment options in a high inflation environment. During a period of inflation, the Reserve Bank will keep the interest rates high and tighten the liquidity and thereby help the liquid funds earn good returns.
Usually liquid mutual funds do not trade and only hold ultra-short term securities until their maturity. This means there is no daily fluctuation of underlying market instruments.
So this helps in reducing volatility. Also, the underlying securities (read ‘borrowers’) usually use this money for short term needs and return it very quick. If not, this will affect their credit rating.
Note: Though liquid funds are largely stable, it is not guaranteed or assured return like fixed deposits.
Choosing a liquid/money market fund and who uses them most
The returns from the liquid funds do not vary greatly as their funds get invested in similar underlying securities. Never consider the past returns only when you are looking for a liquid fund.
The other factors like quality of credit of the underlying securities, the size of the fund and the track record of the fund house might also be taken into account .This is because there is no great difference in underlying assets of most funds.
Liquid funds are used by large institutions to park their short term money. However, it should not discourage individual investors from making use of these money market funds to earn above average returns compared to inflation .
We have already given our opinion on what we think are good funds above to help you protect from inflation.
Different liquid funds type and how to choose them
The liquid mutual funds are available in different plans such as weekly dividend plans, monthly dividend plans and growth plans. It is interesting to note that there is no dividend in growth plans and fund appreciation is reflected in higher unit value.
The investors are free to choose the plan as per liquidity needs. The retail investors are encouraged to invest in direct plans because of the lower expense ratio which helps in securing a higher return.
Case 1: If you received lump-sum money and confused where to invest. In this case, better to choose the growth option of liquid funds split between 2-3 good liquid funds until you decide on the final investment avenue.
Case 2: You’re an aged investor and depend on regular income from your investments. Choose dividend option for the highly liquid part of your portfolio. This will provide a constant stream of cash flow.
Case 3: You have an emergency fund and disappointed with savings account interest? Growth option of liquid fund is an option. Because sometimes, you may not use your emergency fund for years. Always keep one-two month expenses in bank account and park remaining in liquid funds.
Disclosure: I have two month expenses in my bank account. Remaining 3 months of my emergency money fund and cash proceeds/sales marked for investments, re-investments are divided among growth option of two liquid funds ie., ICICI Prudential Money Market, HDFC Liquid Fund.
Past Performance of liquid funds
The performance of the liquid funds in the last one year has been pretty impressive with returns being registered between 7.70 to 8.85%. The banks are also showing greater interest in liquid funds as there is a high degree of safety in liquid mutual funds.
The AUM of Liquid Mutual Funds market in India is on an upswing and these best 5 liquid mutual funds only provide great liquidity for the investors.
Retail investors must make use of liquid funds for storing their emergency cash fund or parking cash of planned investments until they decide where to invest sensibly.
Standard Disclaimer: I’m not a SEBI registered investment advisor and above should not be considered as buy/sell advice and must be considered only for research/education purpose. Please do due analysis before acting/investing and consult your professional financial advisor .
Smartmoneygoal.in does not receive any compensation in any form from any funds/stocks discussed in this website. So let us know if you like our personal review of top 5 best liquid funds in India with your comments. Also ask any doubts if you have.
I would like to invest 1 lac in liquid Mutual fund for 3 months and I would to know how much I will get a return.
Very informative website. Very nice explanation. Quite like the coverage across different parameters, practicality as it does give suggestion with procs and cons including disclosure of various kinds. Thanks!
STUDIOUS & USEFULL ARTICLE FOR INVESTORS
Hi Kesav,
I am currently holding below 4 funds investing .
SBI Blue Chip Fund (G) – from 8 months
Franklin India Bluechip Fund (G) – from 4 years
DSP BlackRock Micro Cap Fund – Direct Plan (G) – from 5 months
ICICI Prudential Value Discovery Fund (G) – from 5 months
Please let me know is it worth continuing in above funds. if not please suggest .
Please suggest me good liquid fund for 2 years . I would like to invest monthly . Please suggest good funds in this category
Thanks a lot,for valuable informations about mutual funds
As per your article, if you invest in the dividend option of Liquid funds, then the investor need not pay tax. But when i read other articles, the publisher talks about the payment of taxes even in the case of dividend option. Can you please clarify
Karthik,
Dividend income is exempt in the hands of the taxpayer as per current tax laws.However, this does not mean that no tax is being paid. If the fund declares a dividend , then a certain percentage has to be paid as tax by the FUND before distribution.(Assume this dividend to be ‘Rs3/-‘ and the tax being paid to be ‘Rs 1/-‘)
If your NAV was Rs 100, this means that the NAV of your scheme will fall by Rs 4 (the amt being paid out as tax and dividend). So new NAV will be Rs 96/-.
Since you are getting the dividend, your net worth will now be (Rs 96 +3) ie Rs 99.
So your initial units worth Rs 100/- have now fallen to 99/- .Why ? Because dividend distribution tax has been charged from the fund house.
While the dividend that you receive (Rs 3) is not taxable in your hand, the fact is that the govt has already taxed the AMC at the point of distribution (you are paying the tax, albeit in an indirect manner).
Hope this clarifies your question
Hi Parsha,
Good Article !!
I would like to invest whatever amount i have saved(10k-20k) every months like FD, is it possible to invest this floating amounts in MF for 6-12 months? or do i need to choose standard amount for every months? and I will have to withdraw the amounts between the time for my personal commitments. So i think Liquid Funds are good in this category, if yes can you suggest good plan for me ?
Thanks,
Siva, Chennai.
Hi,
Thanks for this much informative article.
I have queries regarding liquid fund
1. For liquid fund in mutual fund utility site, i found sip frequency is of daily only. They don’t have monthy or quartely sip.
I found this is for all funds. So, just want to confirm with you that is it really the case that we have to ivnest daily 1000/500 rs…
2. This question is basic, i have a observation for escort liquid fund that though it is having best return for all times in liquid fund then why its AUM is less , why investor are not much interested in that fund…?
Thanks in advance
Hi sir,
I earn 20000 per month. I want to accumulate wealth as well as some emergency fund for future need. I am ready to invest for next 20 years. My age is 34 years. Recently I have started a sip of monthly 2000 in axis long term equtiy and monthly 500 in Tata balanced fund. Please suggest me some funds and how should I proceed.
Dipankar,
For the sake of convenience, you should invest in not more than a universe of 4-5 funds.You may want to consider the following funds too:
Franklin Templeton High Growth Companies Fund
Franklin Templeton India Opportunities Fund
Birla Sunlife Top 100.
Hii sir
Thank you for the article, it’s very useful.
Hello Sir,
I am an NRI ,looking to invest 1 crore for short term in India , with maximum return . Can you suggest any invest plan,
Thanks
can you suggest the time frame for the word short term????
can you suggest the time frame for the word short term????
can you suggest the time frame for the word short term?
Hi Parsha ,
I wanted to vest in liquid funds for my emergency fund needs.
May be first time wanted to invest some lump sum amount and monthly wanted to invest the money after my savings until i reach my 6 months emergency fund( 5L).
Could you please suggest should i invest in a single liquid fund monthly basis ? or should i invest in multiple liquid funds?
Please suggest me best way to invest in liquid funds to avoid high brokerage ot STT charges.
excellent article
Hi Mr Parsha
I am 70 years. I have been parking my money in fixed deposits in banks. But I am rather worried about dwindling interests. I am looking for mutual funds and debt funds and liquid funds. Can you advise me about the best avenue under moderate risk. I am rather depended on monthly income.
Regards
I want invest about Rupees 1 crore in best dividend paying liquid funds. Please suggest me at least 4 names of funds for investing because I don’t want to put all money just in one fund.
Hi Mr. Hegde,
Pls contact me on my email address [email protected],I can suggest you really nice investment ideas.
Regards,
Tejas Doshi
Hi Sir,
Thanks for a great article.
I am planning to invest Rs 8000/month for next 10 months in MF. Pls suggest me with good scheme. After 10 months I want to close the scheme and need my money back for my personal commitment. Advise me, what could be the return if I am investing in recommended scheme.
Hi Sakthi
You can invest equally in any of two funds above. Then redeem after 10 months or in-between when needed. You’ll be liable for STCG.
Do you know any website where I’d get daily NAV data for every debt fund?
Hi Keshav
You can use moneycontrol.com or valueresearchonline.com for getting these values.
I’ve already given link for moneycontrol.com below the table in the post ..
Hi Parsha,
Just need to know which scheme sud I invest in to gain max for my annual tax benefit.
I have been investing in SBI schemes but it seems there are better options.
Can u pls suggest from your experience.
Besides investments for my tax benefit,kindly let me know other schemes for additional investments in MF.
Thanks/ Regards.
R.K.
Hi raaj
What do you mean by ‘annual tax benefits’. Are you referring to 80C deductions? If so, you can consider ELSS. Franklin Tax Shield and Axis Long Term Equity are good ELSS funds.
Thank you for the article, very insightful.
Glad was useful to you Anuj!
I red some where that tax for liquid fund for short term(less than 3 years) is as per tax bracket & long term (more than 3 years) is 20% with indexation. Could you please confirm?
Hi Raj
Yes. As per recent budgets, Returns from less than 3 years holding is as per tax bracket and above 3 years is 20% tax with indexation.
Thanks, the article gives good insight into Liquid funds.
How is the tax computation for ultra short term funds?
Do I have to pay capital gains tax on redemption of mfs bought in 2007 to 2009?
Hi
what is mfs? mutual fund scheme? more than 1 year is long term gains for equity funds and no cap gains applicable.
how come you are not suggesting Axis liquid fund, though crisil ranked no 1?
Hi Vaidya
To be frank, there is little to differentiate among top liquid funds. These funds were arrived/shortlisted as top5 using approach mentioned in post . Agreed Axis Liquid Fund is also good.
Hey Sir
I have planning to invest 1.5 lacs for the period of 2 to 3 years ,but I don’t want to invest in FD as Rate of Return in around max 9% depand on bank to bank.
I’m very much looking for secondary market like mutual fund,ETF or ELSS as generally Rate of Return is Higher there FD, but get confused where&which to invest .As I’m new for this concept Required your help or Suggestion
Regards
Mahesh Patil
Hi Mahesh
2-3 years is a short term for mutual funds or ELSS though they may return positive returns 2 years from now it is not guaranteed.
Short term debt funds should suit your purpose or a mix of debt funds(major part) and some balanced/ELSS funds.
Between Liquid F and Debt F which is a better option in terms of returns and stability if held for 3 yrs or more ?
Hi
Liquid funds have returns/liquidity and debt funds will have stability. You need to find the balance and what you prefer.
Thanks for sharing wonderful information
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