Liquid Mutual Funds

Here is the process that displays the working of liquid funds:

Fund managers collect money from various investors and invest in diverse short-term securities (with up to 91 days' maturity). These investments are actively monitored and adjusted by the fund managers to maintain liquidity and optimisation. The accrual (interest income) received from these debt instruments is used to generate the returns for the fund. The Net Asset Value (NAV) of the liquid fund is calculated every day with the goal of capital preservation and stable growth. To redeem investments, investors can request the fund house; the request is processed chiefly on a T+1 basis (One business day).

Here is the step-by-step guide for you to make your first investment in liquid funds with MySIPOnline:

Step 1: Visit the MySIPOnline website, register there, complete the KYC process and provide the essential financial information.

Step 2: Do thorough research to find a fund for investments, select the best one by reviewing its past performance, expense ratio, fund size and other details.

Step 3: To invest in the selected fund, choose an investment type (SIP or lump sum), enter your amount, select the payment method and confirm the transaction.

The Liquid Mutual Funds generally invest in the following debt instruments:

• Treasury Bills (T-Bills) 
  

  These are short-term investment instruments issued by the government that have virtually no credit risk and are very safe.

• Certificates of Deposit (CDs)
  

  Generally considered safe, the bank and financial institutions issue these time deposits for a particular period of time.

• Commercial Papers (CPs)
  

  Highly rated corporations issue these for their short-term liabilities. They are considered very secure but contain more risk than T-Bills.

• Tri-Party Repos (TREPs)
  

  These are the types of repurchase agreements that are highly safe and liquid instruments that keep a third party as a mediator.

• Government Securities (G-Secs)
  

  The central or state governments issue these debt instruments. According to SEBI, liquid funds must invest 20% (minimum)of assets in G-Secs. 

Here are the key benefits of investing in liquid mutual funds through MySIPOnline:

• Better returns compared to the regular savings accounts.
• Easy redemption of units within 24 hours, ideal for emergencies.
• Redemption is allowed without any additional cost or exit loads.
• MySIPOnline is a user-friendly online platform for convenient investment.
• Invest without worrying about extra fees or hidden charges.
• Access to professional guidance and tailored liquid mutual fund options.
• Liquid funds are comparatively less risky, making them a safe option.
• With MySIPOnline, you can review your investment anytime with live updates and performance tracking.

Mentioned below are the top 5 liquid mutual funds in India to invest in 2026:

*As on 01-02-2026

Let us determine the alignment of liquid funds with your specific goals:

• Short-term Goals: Liquid funds are suitable for investors who want to store their money for a short period(a few days or months) while waiting for the right market opportunity.

• Individuals or Businesses With Surplus Cash:Suitable for investors who are looking for better returns than savings accounts, with easy and quick access to their funds.

• Emergency Fund Builders:These funds allow instant redemptions (as early as the next day) and are therefore highly suitable for urgent situations.

• Conservative Investors:Suitable for investors seeking safety, liquidity and low risk, as they invest in liquid funds in high-quality, short-term debt securities.

• Investors Transitioning to Equity Funds:Really suitable for investors who want to use liquid funds for STP (Systematic Transfer Plan) and want to shift money into riskier asset classes gradually.

• Corporations, Trusts or Institutions:Highly suitable for corporations that want to gain higher returns from their idle funds while efficiently managing them without locking them in.

Liquid Mutual Funds in India are taxed according to their purchase date. The funds bought before and after a particular date are taxed differently. The details are:

Taxation on Units Purchased Before April 1, 2023

The tax on units purchased before this date is based on the holding period. The units held for less than 24 months (STCG) are taxed according to your tax slabs, and the units held for more than 24 months (LTCG) are taxed at a rate of 12.5% without indexation benefits.

Taxation on Units Purchased On or After April 1, 2023

After this date, any earnings from liquid funds are considered as STCG (Short-term Capital Gains), no matter how long the funds are held. These gains are added to your total income and taxed according to your tax slab rates. The indexation benefit is not applicable now, which helped reduce taxable gains by adjusting the purchase price for inflation.

Taxation of Dividends

The income from dividends is added to your total income and is taxed based on the tax slab rates. A 10% of TDS (Tax Deducted at Source) is applied on dividends of more than Rs 5,000 in a financial year. During ITR (Income Tax Return) filing, this TDS can be claimed as a tax credit.