Best Liquid Funds in 2025
A type of debt mutual fund, liquid funds invest in short-term debt and money market instruments, such as Commercial Paper (CP), Treasury Bills (T-Bills) and Certificates of Deposit (CD), which mature within 91 days. These funds are considered the safest among all the mutual fund categories due to their short lending duration. As the name suggests, they offer high liquidity, allowing investors to withdraw funds within 24 hours.
Before investing in 2025, explore the key aspects of some of the best liquid funds in India.
Pros of Investing in the Best Liquid Funds
Here are the advantages of investing in the best liquid funds:
- Reduced Risks: As liquid funds remain stable across different interest rate cycles, you can minimise the risks by investing in these funds.
- Fast Redemption Process: As liquid funds are redeemable based on your convenience within a short-term period, you can enjoy a seamless redemption and liquidity process.
- Flexible Holding Period: Liquid funds do not entail a lock-in period. As a result, you can hold your investments in these funds for any duration from 1 day to 91 days.
A Detailed Overview of Top 5 Liquid Funds
Here is a snapshot of some of the best liquid funds in 2025:
1. HDFC Liquid Fund
HDFC Liquid Fund - Direct Growth is managed by Anupam Joshi and Swapnil Jangam. A key point to note about this fund is that its exit load varies based on the holding period. For instance, if you redeem the investment before 5 days, a 0.005% exit load applies. On the other hand, if you redeem it before 2 days, an exit load of 0.0065% applies.
- Asset Under Management: ₹70,412.56 crore approximately
- Expense Ratio: 0.2%
- Launch Date: December 2012
2. SBI Liquid Fund
You can invest in SBI Liquid Fund (Direct Growth) and measure its performance with the benchmark, Nifty Liquid Index A-I. The investment tenure can be as short as one day or longer, depending on your financial goals. Managed by Rajeev Radhakrishnan, the fund has a maximum exit load of 0.0069% if redeemed within one day.
- Asset Under Management: ₹66,778.13 crore approximately
- Expense Ratio: 0.21%
- Launch Date: January 2013
3. ICICI Prudential Liquid Fund
ICICI Prudential Liquid Fund (Direct Growth) holds 13.44% in Government Securities and 85.97% in low-risk securities, making its debt portfolio 99.36%. Before investing, you can compare its performance with the CRISIL Liquid Debt A-I Index (benchmark) to assess its return potential.
- Asset Under Management: ₹55,112.4 crore approximately
- Expense Ratio: 0.3%
- Launch Date: December 2012
4. Aditya Birla Sun Life Liquid Fund
Aditya Birla Sun Life Liquid Fund has a debt portfolio of 95.84%, comprising 80.2% low-risk securities and 15.54% Government securities. If redeemed within 1 day, the maximum exit load is 0.00699%.
- Asset Under Management: ₹57,091.44 crore approximately
- Expense Ratio: 0.21%
- Launch Date: January 2013
5. Axis Liquid Fund
Investors can consider Axis Liquid Fund (Direct Growth), managed by Anupam Joshi and Swapnil Jangam and compare its performance with the CRISIL Liquid Debt A-I Index. Redeeming before 1 day incurs an exit load of 0.0069%.
- Asset Under Management: ₹70,412.56 crore approximately
- Expense Ratio: 0.2%
- Launch Date: December 2012
Key Takeaway
The best liquid funds in India can help investors reduce the risk associated with a diversified investment portfoliọ. While you can earn a stable return from investments in these funds, you can further redeem your investments based on your convenience in the short term. Regardless of how attractive they may seem, make sure to check the expense ratio of a liquid fund before you invest in order to maximise potential returns.
Frequently Asked Questions
1. What are the risks involved in the best liquid funds?
Liquid funds are subject to inflation rate risks as the returns are relatively low compared to equity investments. In addition, interest rate fluctuation and credit risks are other underlying cons of investing in the best liquid funds.
2. How long should I stay invested in the best liquid funds?
Liquid funds, as the name suggests, offer high liquidity or easy redemption options. You can stay invested in these funds for 7 days to 1 year to optimise your returns.
3. Where do liquid funds invest?
Liquid funds invest in short-term debt instruments such as commercial papers, treasury bills, certificates of deposit and other instruments that are prone to lower risks.
4. How to invest in liquid funds?
To invest in liquid funds, start by reviewing the past performance of your chosen fund and comparing it with its benchmark. Next, assess the fund’s portfolio to ensure it aligns with risk appetite, investment goal and horizon.
5. How are liquid funds taxed?
The gains from liquid funds are taxable as per short-term and long-term capital gain tax rules in India. Notably, the dividends you earn from these funds are exempted from taxation.
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