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Top Performing Liquid Funds To Invest In 2021-22

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Mr Roy is looking to invest in debt and money market securities for a short-term lock-in period. However, he is confused regarding his choices.

What category of mutual fund schemes should he invest in?

For maximum returns in a short span, he can choose to invest in liquid funds. These are a class of debt instruments that come with a residual maturity of 91 days or less at the time of investing. Some examples of liquid funds include treasury bills, certificates of deposits, commercial papers and more. 

Therefore, like Mr Roy, if you are planning to invest in such an instrument, you might want to go through the list of best liquid funds in the following segment. 

Top 10 Best Liquid Funds to Invest in 2021

Name of the Liquid Mutual FundFeatures
Quant Liquid Fund- Direct GrowthAssets Under Management (AUM): Rs. 376.35 crores as on 20 October 2021
Net Asset Value (NAV): Rs. 33.59 as on 30 September 2021
5-year returns: 25.20% as on 2 November 2021
Expense ratio: 0.50%
Navi Liquid Fund- Direct Plan- GrowthAUM: Rs. 84 crores as on 30 September 2021
NAV: Rs. 2292.01 as on 3 November 2021
5-year returns: 5.66% as on 2 November 2021
Expense ratio: 0.15%
IDBI Liquid Fund- Direct GrowthAUM: Rs. 1078.12 crores as on 30 September 2021
NAV: Rs. 2250.58 as on 30 September 2021
5-year returns: 5.89% as on 2 November 2021
Expense ratio: 0.13%
Edelweiss Liquid Fund- Direct Plan GrowthAUM: Rs. 1,573.28 crores as on 30 September 2021
NAV: Rs. 2699.63 as on 30 September 2021
5-year returns: 5.91% as on 30 September  2021
Expense ratio: 0.13%
Nippon India Liquid Fund Direct- Growth PlanAUM: Rs. 21,654.55 crores as on 30 September 2021NAV: Rs. 5,115.89 as on 30 September 20215-year returns: 5.82% as on 30 September  2021Expense ratio: 0.18%
ICICI Prudential Liquid Fund Direct Plan Growth OptionAUM: Rs. 34,592.23 crores as on 30 September 2021
NAV: Rs. 309.76 as on 30 September 2021
5-year returns: 5.78% as on 30 September  2021
Expense ratio: 0.20%
Tata Liquid Fund Direct- GrowthAUM: Rs. 9286.37 crores as on September 2021
NAV: Rs. 3301.16 as on 30 September 2021
5-year returns: 5.08% as on 30 September  2021
Expense ratio: 0.22%
Mahindra Manulife Liquid Fund Direct Plan- Growth OptionAUM: Rs. 1,611 crores as on 30 September 2021
NAV: Rs. 1,363.65 as on 2 November 2021
5-year returns: 5.97% as on 30 September  2021
Expense ratio: 0.14%
LIC MF Liquid Fund AUM: Rs. 9,608.83 crores as on 30 September 2021
NAV: Rs. 3799.79 as on 30 September 2021
5-year returns: 5.75% as on 30 September  2021
Expense ratio: 0.11%
Baroda Liquid FundAUM: Rs. 5139 crores as on 30 September 2021
NAV: Rs. 2416.57 as on 30 September 2021
5-year returns: 5.84% as on 2 November  2021
Expense ratio: 0.16%

Benefits of Liquid Funds

Lower risk

Liquid funds are low-risk debt funds that offer steady returns and safety to the principal investment. Hence, the fund’s value remains more or less constant during market fluctuations. 

Low cost

Unlike other debt funds, these funds are not managed actively. Therefore, the expense ratios of the best liquid funds are well below 1%. This low-cost fund makes it possible for you to receive maximum returns. 

Flexible holding period

These funds come with a flexible holding period making it easier for investors to enter or exit an investment while earning high returns. In addition, most fund houses do not charge any exit load for these funds. 

Fast redemption process

By investing in these funds, you can avail instant redemption facilities. 

Taxability on Liquid Funds

Capital gains tax is applicable when you earn capital gains by selling units of the fund at a price higher than the purchase price. The two taxes levied on your liquid fund returns are- short-term capital gains tax (STCGT) and long-term capital gains tax (LTCGT). 

When you sell or redeem your fund units before the 3-year lock-in period, you might need to pay an STCGT. In this case, taxation will be done as per your income tax slab rate.

On the other hand, if you sell units of your liquid fund after a holding period of 3 years, you will need to pay an LTCGT at the rate of 20%. Also, you can avail of indexation benefits. Under this benefit, there is an increase in the fund’s purchase price to adjust the market inflation. 

Who Should Invest in the Best Liquid Funds?

  • Individuals with a lump sum amount of cash who are looking to invest for the short-term might want to consider this mutual fund. 
  • Investors who are averse to risks might find this fund useful as it invests in debt instruments. Debt funds offer potential lower risks compared to other mutual funds. 
  • Individuals who wish to opt for liquid funds through a Systematic Transfer Plan (STP) can funnel their money into equity funds through this plan. This investment mode offers two benefits- substantial returns and helps in averaging down the investment cost in equity. 
  • Investors who are unsure about where to invest their sudden windfall gains might want to consider parking their money by investing in liquid funds for a short time. 

Further, invest in the Navi Liquid fund and enjoy near zero risk of loss investing for a minimum of one  month. Also, earn 2x returns by investing in this fund. Download the Navi app and avail the benefits now. 

Things to Consider before Investing in Liquid Funds


Historically, liquid funds have offered returns of around 7%, which is more than that of savings schemes and fixed deposits. Therefore, you might want to consider the list of best liquid funds from above and select the one that meets your requirements in terms of risks and returns. 

Expense ratio

A fund’s expense ratio is an annual maintenance charge that is levied by fund houses for managing the investment portfolio. Although the expense ratio for liquid funds is comparatively lower, you might want to compare the charges before settling for a particular fund. 

Investment horizon

Liquid funds essentially invest in securities that have a maturity period of up to 91 days. By investing for such a short span one can realise the potential of the securities invested in. 

Financial goals

If you have short-term goals, or want to set aside funds for dire emergencies, you might want to consider investing in liquid funds due to their short maturity period. Further, due to its flexible holding period, you can withdraw funds as and when required. 

Taxes on returns

Capital gains earned on liquid funds are applicable to taxes. Therefore, you might want to consider the taxation before investing in these funds. 

Final Word

Now that you know everything about the best liquid funds available in India, you can start investing effortlessly. In this aspect, you can consider reputed AMCs such as Navi and choose the Navi Liquid Fund to obtain substantial returns. 

Frequently Asked Questions

Do I need to pay tax on dividend income from a liquid fund?

No, you do not need to pay tax on dividend income from liquid mutual funds. 

Is a liquid fund better than Fixed Deposit?

Both liquid funds and Fixed Deposits generate similar returns. However, the former comes without a lock-in period and does not charge a penalty for withdrawing money after 7 days of investment.

Do liquid funds have an exit load?

Generally, they do not have an exit load if you redeem units after 7 days of investment. 

Does the Net Asset Value (NAV) of a liquid fund fluctuate much?

No, because liquid funds invest in high quality securities for a short span, it does not affect its NAV. 

Can I lose money by investing in liquid funds?

The chances of financial losses are very less considering it invests in debt instruments for a short time. 

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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