Liquid funds are a part of debt funds. These funds invest in short term and long term guaranteed products such as Bonds, commercial paper, non convertible debentures, fixed deposits of banks, corporate fixed deposits and other cash equivalent products. These funds give a return which is closely adjusted to the average returns of the products that it has invested.
Advantages of liquid funds compared to fixed deposits
If an investor wants to invest in a fixed deposit for a duration less than 6 months in a bank, the bank gives a return less than 6% per annum whereas in a liquid funds close to 7% to 9% per annum return can be achieved even for a short duration of a day or two.
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