The debt fund category has evolved over the years, and is classified into several sub-categories based on their maturity period or the type of underlying security. Within this universe, liquid funds have for long been the short-term parking ground for corporates and HNIs for the liquidity they offer.
What are liquid funds?
Debt funds which only invest in securities with a residual maturity of not more than 91 days are liquid funds. Currently, the average portfolio maturity of funds in this category ranges between three and 52 days. Investments are mostly in money market instruments, short-term corporate deposits and treasury bills.
