Top Liquid Funds in India – Meaning, Examples and Taxation in 2025

Last Updated on Apr 22, 2025 by Aishika Banerjee

Liquid funds occupy a distinctive niche in India’s debt-mutual-fund landscape, offering a low-duration avenue for parking surplus cash without locking it into traditional fixed-income products. Regulated by SEBI as a category of debt schemes that invest in money-market and short-term instruments with residual maturities of up to 91 days, these funds aim to combine high liquidity with relatively low volatility. This article will explore the top liquid funds, taxation, factors and more. 

Best Liquid Funds in India – Updated April 2025

Name	AUM (Rs. in cr.)	5Y CAGR (%)	3Y CAGR (%)	Expense Ratio (%)	Volatility (%)	Minimum Lumpsum (Rs.)
Quant Liquid Plan	1,536.26	5.87	6.78	0.25	0.15	5000
Aditya Birla SL Liquid Fund	41,051.49	5.58	6.95	0.21	0.10	500
Mahindra Manulife Liquid Fund	1,025.78	5.58	6.94	0.15	0.09	1000
PGIM India Liquid Fund	365.97	5.57	6.93	0.12	0.11	5000
Edelweiss Liquid Fund	5,243.37	5.57	6.93	0.09	0.10	100
Union Liquid Fund	3,206.36	5.55	6.92	0.08	0.10	5000
Axis Liquid Fund	32,608.90	5.54	6.93	0.09	0.10	500
Nippon India Liquid Fund	28,240.76	5.54	6.90	0.2	0.10	1000
Mirae Asset Liquid Fund	8,684.21	5.54	6.91	0.09	0.10	5000
Bank of India Liquid Fund	1,523.92	5.53	6.92	0.1	0.09	5000

Note: The above information is dated 22nd April 2025. The parameters used to filter the list of top flexi cap funds on Tickertape’s Mutual Fund Screener are:

• Category > Debt > Liquid Fund
• Plan – Growth
• 5Y CAGR: Set high to low

Overview of the Top Liquid Funds in India

Quant Liquid Plan

Quant Liquid Plan is a short-term debt mutual fund by Quant Mutual Fund, focusing on investing in money market instruments with high liquidity and minimal risk. It aims to provide optimal returns for investors seeking a safe, low-duration investment alternative with quick redemption options and stable income generation.

Aditya Birla SL Liquid Fund

Aditya Birla Sun Life Liquid Fund offers a low-risk, high-liquidity investment option. Managed by Aditya Birla Sun Life AMC, it invests in short-term debt instruments like treasury bills and certificates of deposit, catering to investors looking for capital preservation and better returns than savings accounts.

Mahindra Manulife Liquid Fund

Mahindra Manulife Liquid Fund provides a secure investment avenue with high liquidity, targeting short-term money market instruments. Managed by Mahindra Manulife Investment Management, it aims to meet investors’ needs for capital protection and efficient cash management through a diversified portfolio of low-risk debt securities.

PGIM India Liquid Fund

PGIM India Liquid Fund, managed by PGIM India Mutual Fund, invests in high-quality debt and money market instruments. It is designed for conservative investors seeking a safe place to park funds for short durations, offering daily liquidity and stable returns with minimal interest rate risk.

Edelweiss Liquid Fund

Edelweiss Liquid Fund, from Edelweiss Mutual Fund, is designed for short-term investors who prioritise liquidity and capital preservation. It invests in low-duration instruments such as treasury bills and commercial papers, offering easy access to funds while maintaining a conservative investment profile with consistent short-term yields.

Union Liquid Fund

Union Mutual Fund manages the Union Liquid Fund and invests in a mix of short-term debt and money market instruments. It caters to investors seeking immediate liquidity, low volatility, and capital safety, making it a suitable alternative to traditional savings instruments.

Axis Liquid Fund

Axis Liquid Fund, operated by Axis Mutual Fund, is designed for investors seeking low-risk investments with high liquidity. It focuses on high-credit-quality money market instruments and short-duration debt securities, making it an ideal option for short-term parking of surplus funds.

Nippon India Liquid Fund

Nippon India Liquid Fund, from Nippon India Mutual Fund, targets low-duration debt instruments to offer high liquidity and stable returns. It suits investors who prioritise capital preservation and quick access to funds, acting as a flexible financial buffer or short-term savings tool.

Mirae Asset Liquid Fund

Mirae Asset Liquid Fund is a short-term debt fund offered by Mirae Asset Mutual Fund, which invests in high-quality money market instruments. It is intended for conservative investors seeking capital preservation, daily liquidity, and returns slightly above traditional savings methods, making it ideal for deploying temporary surpluses.

Bank of India Liquid Fund

Bank of India Liquid Fund, managed by BOI AXA Mutual Fund, offers a low-risk investment solution through short-term debt and money market instruments. It focuses on maintaining high liquidity and capital safety, catering to investors who seek efficient cash management and a stable, short-duration investment option.

What are Liquid Funds?

Liquid mutual funds for short-term and long-term are also known as money-market funds. They ensure high liquidity to the investors by investing their capital in short-term debt instruments and money market securities. They are considered secure investment instruments because of the high credit rating of money market instruments and the minuscule risk of losing the invested capital. 

Some of the instruments that constitute a liquid fund’s portfolio include certificates of deposits (CDs), corporate bonds, treasury bills (T-bills), debentures, commercial paper, and more.

Who Can Invest in Liquid Funds?

The returns offered by liquid funds are higher than that of a regular savings account. If you are an Indian and have an account with an Indian bank, then you can invest in liquid funds after completing your Know Your Customer (KYC) formalities. In case you are an NRI, you can also invest in Indian liquid funds as long as you adhere to the Foreign Exchange Management Act (FEMA).

Generally, investors choose liquid funds for a short-term investment plan. Another reason to choose liquid investment funds is that they also offer indexation benefits. Therefore, whether or not you should invest in the best liquid funds for investment depends on your financial goals and other factors! 

Factors to Consider Before Investing in Liquid Funds

Here are some crucial aspects that you must consider before investing in liquid funds in India:

Risks

Even the best liquid mutual funds do not experience a lot of volatility. Hence, the net asset value (NAV) of the fund remains almost steady. However, if the credit rating of any underlying security drops, then there is a possibility that the NAV can experience a drop, too. 

Returns

Regarding numbers, savings accounts in India have a return rate of ~4%. Whereas a liquid fund offers you around 4-8% returns on average. Therefore, consider the liquid fund returns when you are planning to invest in high-return liquid funds.

Exit load

It is critical to note that though liquid funds can be redeemed anytime, an exit load would apply if you redeem the funds within the first seven days. This would reduce the net earnings from the fund.

Expense ratio

Liquid funds charge an annual fee called an expense ratio for fund management services. This is a percentage of the total assets of the fund. Hence, this is one of the important factors to consider when choosing a liquid fund. 

Investment plan

Before investing in any instrument, make sure you have a proper investment plan. Many investors use liquid funds to create an emergency fund, offering higher liquidity while giving reasonable returns at lower risk.

Taxation on Liquid Funds in India

Liquid mutual funds India are taxed as debt funds in India. Understanding the latest tax regulations on debt mutual funds is crucial for effectively managing your investments. The Union Budget 2024 has introduced significant changes to the taxation of debt mutual funds. Here is a detailed breakdown of the new tax rules:

Short-Term Capital Gains (STCG)

If you sell your liquid mutual fund options within three years (36 months), the gains from these investments are considered short-term capital gains. According to the new budget, these gains will be taxed according to your income tax slab rate.

Long-Term Capital Gains (LTCG)

For tax-efficient liquid funds held for over three years (36 months), the gains are categorised as long-term capital gains. The key points to note under the new budget are:

• Tax Rate: The tax rate for long-term capital gains on liquid fund schemes is now a flat 12.5%, regardless of the amount of gain.
• No Indexation Benefit: The benefit of indexation, which previously allowed investors to adjust the purchase price of their assets for inflation, has been removed for debt funds. This means that the entire gain from selling a debt fund after three years will be taxable at the flat rate of 12.5%.

Summary

Capital Gains Tax	Description
Short-Term Capital Gains (STCG)	If you sell your debt fund units within three years (36 months), the tax will be as per your income tax slab.
Long-Term Capital Gains (LTCG)	For debt funds held for over three years (36 months), the tax rate is now a flat 12.5% without indexation benefits.

Conclusion 

Liquid Funds are low-risk investment instruments with better returns for a short-term investment plan. Whether to invest in short-term liquid funds depends entirely on your financial goals. However, before investing, consult your financial advisors and tailor your portfolio for risk tolerance and market volatility. You can save your efforts and time by using Tickertape’s Mutual Fund Screener to find the best mutual fund based on your risk tolerance and investment preferences!

Frequently Asked Questions About Liquid Funds