Top 5 Best Liquid Mutual Funds in India in 2018

Liquid Funds are gaining popularity due to it’s safety, returns and tax benefits. However, many of us confused in choosing the right funds. Hence, in this post, let us discuss about the Top 5 Best Liquid Mutual Funds in India in 2018.

What is a liquid fund?

Liquid fund is a type mutual fund that invests money in Bank Certificate of Deposits, Bank Fixed Deposits, Treasury Bills, Bill Rediscounting, Commercial Paper, Collateralised Borrowing & Lending Obligation and other debt securities with maturities up to 91 days.

The NAV of the funds is computed for 365 days, unlike other debt mutual funds where NAV is computed for business days only.

In the case of other debt funds for purchase applications received within the cut-off time (3.00 P.M) having the value up to Rs.2 lakhs, the NAV as at the end of the day of the application is applied. For applications of more than Rs.2 lakhs, within the cut-off time (i.e. 3.00 P.M.) the allotment of units is subject to realization of funds.

However, in the case of liquid funds, for all transactions (irrespective of the value of an investment) received within the cut-off time (i.e. up to 2.00 P.M.) where money is also realized within the cut-off time, the units are allotted as per previous day NAV.

Let us say if a purchase transaction in a liquid fund is submitted on Monday before 2.00 P.M. and amount is also realised by 2.00 P.M. on Monday, then NAV of Sunday is applicable.

Similarly, when redemption request is submitted before cut-off time on Friday, then applicable NAV for redemption is of Sunday, i.e. the day before the next business day. This means, your investments generate returns for every single day of investment.

Who can invest in Liquid Funds?

The popular theory is that park your IDLE money in liquid funds. However, you must understand for how long the money be IDLE. Based on that time horizon you have to take a call. Idle money of one day is different than idle money of 1 year.

Few suggest that we must use liquid funds to keep our emergency fund. But in my view, liquid funds or not so liquid in nature. Because if you request for redemption (before cut-off time), then the money will be credited on the next working day.

Nowadays there is an option of instant redemption. Under this option, you can redeem instantly up to Rs.50,000 per day per folio. This has given some liquidity benefit. However, if your requirement is more than Rs.50,000 then you have to wait for next day.

Few funds offer you the card for withdrawal but there are certain withdrawal restrictions.

Hence, my suggestion is to park your PART of emergency fund in liquid funds rather than parking all 100% into liquid funds.

However, the best idea to utilize liquid funds is to invest for your short-term goals. You can expect a better return than your savings account (4%). Some funds generated around 8% to 9% and some funds around 5%. But we assume liquid funds generate higher than your savings account.

As the liquid funds invest in low maturity papers, the volatility is very less. Also, they invest in high credit rated papers (higher than AA rated), so the default risk is also very minimal.

Hence, you may say the highest safety, more expectation than your savings account are the primary reasons for investing in liquid funds.

What is the tax on liquid funds?

Liquid funds are treated like other debt funds for taxation purpose. If you hold the fund for less than 3 years, then it is considered as Short Term Capital Gain (STCG). However, if you are holding for more than 3 years, then it is considered as Long Term Capital Gain (LTCG).

Short Term Capital Gain Tax for Debt Funds-It will be taxed as per your tax slab.

Long Term Capital Gain Tax For Debt Funds-It will be taxed at 20% with indexation benefit.

I will try to explain the same from below pictures.

Mutual Fund Taxation FY 2018-19

Hope you got the clarity about the taxation classification. Now let us understand the rate of tax.

Refer the complete Tax Benefit of Mutual Funds in my earlier post “Budget 2018 – Mutual Fund Taxation FY 2018-19“.

How I shortlisted Top 5 Best Liquid Mutual Funds in India in 2018?

As I said above, all liquid funds invest in debt papers which mature in less than 91 days. However, few funds take the risk by investing in low rated funds for the sake of generating high returns. Hence, I went through each fund portfolio.

Again, the best way I suggest to invest in the liquid fund is in same AMCs funds where you already investing in equity funds or you already have online access or folio number already generated. Because the difference of returns among the funds is very less.

But as I said above, I shortlisted the liquid funds based on the below criteria.

# Expense Ratio

I selected the direct funds for the sake of my comparison and tried to list the expense ratio of all these liquid funds. Because expense ratio also matters when it comes to return on investment.

# Average Maturity

I select the fund which shows category average maturity. All liquid funds invest in the papers which mature within 91 days. Lower the maturity means the fund is holding more cash which in return gives me less return. Hence, I avoid the fund which show lower average maturity.

For example, IIFL Liquid Fund-Direct-Growth average maturity is 0.08. Hence, it indicates that the fund is holding the cash highly. I will not touch such funds.

# Credit Quality

My concentration is to select the funds which are holding 100% AAA rated funds rather than the funds which to a certain extent holding AA rated or unrated papers.

# Modified Duration

Modified duration is again the indication of the volatility of the fund. Hence, I choose the fund which is low in modified duration.

Why returns not matter?

We look at liquid funds mainly for safety than anything else. Also, our expectation from such funds should be always to get more than savings account returns. Hence, I don’t think 1% or less than 1% returns matters to us.

Hence, I overlook the return part and consider only on quality and safety.

Top 5 Best Liquid Mutual Funds in India in 2018

Based on the above assumptions, I have shortlisted Top 5 Best Liquid Mutual Funds in India in 2018. Remember that this is not the FINAL best liquid funds list. Also, as I pointed already, my priority is for highest safety than return. Hence, even though few funds performing well, I may be ignored and you may point that as I am bit BIASED. Two reasons for that may be. One is these funds holding average credit rating as AA or unrated papers and the second thing I may be biased towards fund houses.

Below is the list of Top 5 Best Liquid Mutual Funds in India in 2018 I have selected (marked with green color).

Top 5 Best Liquid Mutual Funds in India in 2018

If you find the ratings of these funds in valueresearch, then you find that all these are rated less than 5 or 4 rated. The reason is, the 5 and 4 star rated funds average credit rating is AA or they may be holding some % of AA rated papers, which I completely avoided for selection.

Hope my above methodology and the funds’ selection will help you in short listing the Top 5 Best Liquid Mutual Funds in India in 2018.

Refer my earlier posts related to Mutual Fund Investment in 2018-19

96 Responses

  1. Hi Basu,
    For short-term investment (say 1-2 years) in a liquid find, shall I go for lump sum or opt for STP if the investment amount is high (for example, 5 lacs)?

  2. Hi im new to investment into mutual fund dont hav much idea i would like to invest Rs 5000 in SIP for perioid of 10-15 years currently im of age 28 so which would be the ideal funds to invest?
    If you could plse suggest me.

  3. Can you help me in mf investment
    I have an mf in uti 2500 per month
    Uti transport n logistics fund-500
    Uti mid cap-1000
    Uti value opportunity fund-1000

    Its been since 2017 im investing all equity allocation i think

    Kindly advise should i continue

      1. My time horizon is 10-15 years and financial goal is 3-4 crs by that time and current mf allocated is 100%equity
        Plse advise im correctly invested?

  4. Hello Basavaraj,

    Any plans on coming up with 2019 best liquid funds one can look at?
    I had started with “Aditya Birla Sun Life Liquid Fund” and “RELIANCE LIQUID FUND” ..
    Not sure if these are in the top list..


  5. Hi Basu,

    Thanks for this. Quick one : how to find Credit Quality? Any site from wherein we can get these % across paper types? Checked VR and Morningstar couldn’t find it !

  6. Hi Basu
    Planning to invest 2 lac for my daughters education lump sum, shall I put in Liquid fund and then STP /SIP ?
    Time horizon is 8 years (she is in 5th grade)
    I have adequate Insurance cover, Debt(LIC/FD/PPF)
    My Funds as follows SIP
    Franklin Ultra short -5k
    Franklin prima plus-2k
    HDFC- Hybrid balanced -10k
    So kindly advice shall I park my 2 lac lump sum in Any of the above fund or Liquid fund and STP route?
    Is my funds ok(courtesy BasuNivesh Q&A)
    Thanks many

    1. Dear Saleem,
      I am not sure what portion of debt is there. Hence, I would suggest around 60:40 between debt and equity. For debt, use Ultra Short Term Term Debt Fund (in one go) and for equity one large cap (stagger your investment for another 6 months). Two funds are enough for you.

  7. Hello Sir,
    I am planing to invest in Mutual funds or SIP for the Long term (10 to 15 yrs), right now i am investing in EPF 5000/ Month. Now I want to invest another 5000 per month for (10 to 15 yrs) in Mutual funds or SIP, I have read your blog regarding this then i after i have chosen below funds, Please suggest i am on right track or not or need to change amount ratio with other plan or other things.
    1. SBI Blue chip fund-Direct growth :2000
    2. HDFC Midcap Opp Fund(G) :2000
    3. Mirae Asset Emerging blue chip-Direct Plan :1000


    1. Dear Amit,
      How you arrived at these funds? Because few may not be my recommendations. Hence, don’t say you selected based on my views. Also, let me know what asset allocation you are following between debt and equity.

      1. Thanks a lot for your response!

        I mean, I have selected these funds on the basis of read some blog on your site as well as on another platform. Then after i have selected these funds.

        I want to invest debt and equity as ratio 40:60 my over all investment for the month is 10K for the long term 10 to 15 years.
        I am new in this field, i don’t know i am going in the right direction or not. So please suggest which fund will better for me and what ratio need to invest in those funds. Also i want to invest directly(my self) through online platform.


  8. Dear Basu ji
    I want to invest another 10000 as sip. Interested in doing it directly.I am already investing 14000 through karvy in different mutual funds. They are -:
    Birla snlfe midcap fund -3k
    Mirae asset emerging bluechip fund – 4000
    L&t india value fund – 4000
    Icici prudential bnkig & finance service fund – 3000
    Time 10 yrs for child education.
    Pls guide.

  9. Dear Basu ji
    I have started investing in Axis long term Equity – Regular Plan in Nov 2015. Suppose if i make STP to Axis long term Equity – Direct Plan from Dec 2018, Whether the same will be considered for Tax deduction u/s 80c? Can you please clarify. Thanks in advance.

      1. Dear basu ji,

        Yes, The unlocked units of Nov 2015 (regular plan) will be invested in ALTE fund Direct Plan for Dec 2018 through STP.

        Thanks for your swift reply.

  10. where are you seeing the credit rating of the holding instruments of any liquid fund? When I see (for example of axis liquid fund direct growth) in either value research, economic times, or money control or any random website related to mutual funds, I am seeing either top holdings with A1+ rating or all holdings without any rating? You said axis liquid fund direct has holdings with AA ratings, but where can I see such ratings?

  11. Hi Basu,

    For your contingency (or emergency) fund, investment in liquid or ultra-short funds can be made as a lump sum or be staggered for a few months?

    Thank you in advance.

  12. Hi,

    I invest in these three funds. 1. Aditya birla sunlife front line equity 2. Parag parikh long term equity 3. SBI bluechip

    My amount for each fund is 10,000 per month. My goal is to generate 3 Cr. for retirement at 60. That is after 30 years.

    I know that I have two large cap and one multi cap. The question is can I add “kotak standard multicap” as another multi cap. Is this advisable?

    I have regular investments in Post office schemes to cover my debt part of the investments, please help. I am not married yet so can take moderate risk. Thank you very much.

      1. Hi,

        I do approx. investments of 10,000 every month in Post office PPF, Also, 30,000 every year from 2013 in post office monthly income scheme.

        What you are saying is correct but I am little afraid of small cap. So do you think two large cap and two multi cap can be the ideal solution.

        Thank you very much.

          1. You are correct Sir. I understand that multi cap in small cap.

            Can you please suggest what should I do? Please suggest a suitable small cap fund.

            Do you think I can have two large cap and one multi cap and one small cap? I am confused, please advice. thanks again.

  13. Hello Mr. Basavaraj,

    Firstly thanks for running such great website. I want your advice on my mutual fund portfolio.

    My age is 30 yrs old and I have started SIP of 75,000 each in SBI Blue chip, Parag Parikh long term equity fund, aditya birla frontline equity fund. All are direct plans.

    I bought them by watching advice from the finance experts on TV and started it three years back with 40,000 each.

    Do you think I should go for any micro or mid cap?

    I have moderate risk taking ability. For debt investments, I have gold and FD. I have a family home, so no home loan emi. I also have term plan of 10 crore and salary is around 4.5 lakh.

    Can you please guide if I am on the right financial path.

    Thank you.

    1. Dear Rishab,
      When you say you have debt portion in gold and FD, then do you liquidate the gold for the sake of balancing your asset allocation? First set your time horizon, then based on that do the asset allocation. Afterward, we discuss about the funds.

      1. Hello Mr. Basavaraj,

        My goal is gain wealth in next 20 years so that I can retire by 50. I should at least have 10 cr. by that time. Now I am 30 yrs.

        I did not think of buying debt funds as time horizon is 20 yrs. For instant liquidation, I have around 15 lakh as bank saving. That I also want to use as emergency fund.

        From both my above details, do you think I am on the right financial path. How are my selected funds?

        Thank you.

  14. Good afternoon,

    I invest through SIP in three different fund. Each SIP is of 30,000. I have two large cap and one mid cap fund.

    Now I have 3.6 lakh as a surplus. The questions is:

    Can I do additional purchase of around 10,000 each month in each fund that is 30,000 per month for next 12 months rather than doing a lump sum purchase?

    Please advice your opinion. Thank you.

      1. Good evening,

        The Mutual funds are focused just for my retirement. I want 3 Cr at the age of 60. Now I am 36.

        For debt I have invested in 7 yrs. RD + 5 yrs. Tax FD + another 3 yrs. normal FD. No debt funds.

        So other than 90,000 every month in MF, I invest 25,000 in the RD.

        I have a home loan of 27 lakh with 2 Cr. term insurance plan.

        As I have 3.6 lakh as a surplus, I wanted to know if the additional purchase of 10,000 each month in each fund that is 30,000 per month for next 12 months rather than doing a lump sum purchase?

        Thank you.

          1. Sure Sir. Can you please help me with this question –

            I have 3.6 lakh as a surplus, I wanted to know if the additional purchase of 10,000 each month in each fund that is 30,000 per month for next 12 months rather than doing a lump sum purchase?

  15. I want to see all my funds (amount I invested and returns) in single platform(login)
    Right now I have ICICI, HDFC,SBI direct funds

  16. We generally see that in equity mf, the funds gives a much better returns. I myself experienced 20% returns in 5 years.

    But when in the long term like 10 to 12 years, the return comes down. I am taking this goal more from retirement or child marriage points where most of us have 10 to 20 years time.

    I have seen the same fund which gave 20% in 5 yrs, gave 11% after 12 years.

    Is it a good strategy to exit in 5 years by booking 20% returns? And invest this money into a new fund or to wait till 10-20 years when your goal is nearer by.

    I know that with long term power of compounding will help.

    But, I am trying to understand that can we get higher return for a 10 years goal by dividing it into two timelines of 5-5 years?

    I want to know an expert view from someone like you. Thank you sir.

    1. Dear Shreehari,
      For 5 years you might have generated +20% returns. However, there is also a possibility of getting -20% returns also. Which is not with the long term 12 years 11% returns right? This is the reason, it is always recommended to invest for long term. In short term there may be huge positive or negative return possibilities.

  17. Hello Sir,

    It is a very informative article, as always.
    Thanks for imparting knowledge to common man like me.

    I have few doubts about liquid fund.

    1. As your blog says Liquid funds mature in 91 days, what if I keep the amount for around 2 years in Liquid fund? whether it will earn returns for whole year (like FD)? or it will earn for every 90 days and we have to withdraw and reinvest after 91 days?

    2. I have some amount in FD, which is my emergency fund. Due to tax implications and low post tax returns, want to transfer to any of the debt funds. As of now want to park it there for 1 or 2 years.
    In case of emergency, I may need money much earlier also (like within an year) or if there is no emergency, it may so happen I may not need it at all for few more years (say more than 2 years) , which am not sure at this point of time.
    For this purpose should I choose Liquid fund or ultra short-term debt fund or short term debt funds?
    OR 50% in liquid fund and 50% in short-term debt fund?

    Request you to please clarify my doubts.

    Thanks in advance,

    1. Dear Harsha,
      1) Fund Manager continuously redeem at maturity of bonds and re-invest the same. Hence, you can keep the money as long as you wish. Also, you will earn the returns as long as you hold the money.
      2) Better use 50:50 in Liquid Fund and Ultra Short Term Debt Fund.

  18. Hello Sir,

    I invest 2,000 every month in the below mutual funds (total 6,000/ month). These funds were bought from an advisor in 2016.

    I was to raise capital in coming 10 years and the goal is rupees 20 lakh for home renovation. I have my family home and my take home salary is 30,000. My age is 25 years old.

    Please advice me on the below portfolio. I do not have any other investments. I have 50 lakh term plan that was purchased this year.

    1. Parag parikh long term equity fund

    2. Kotak Standard Multicap Fund

    3. SBI Blue chip fund

    1. Dear Sameer,
      You did the mistake of investing all 100% in equity asset. Instead, do the asset allocation of 50:50 between debt and equity and then continue the fund. Regarding debt, use Ultra Short Term Debt Fund.

      1. Sir, thanks for the help. I read in your other blog comments about franklin India ultra short bond fund direct plan.

        Do you think I can invest in the above fund for 5 to 10 years?

        Also, is it good to invest in bank RD? Please help.

  19. I am watching on you tube and reading a lot of things about – Parag parikh long term equity fund

    Can you please let me know if this fund would be suitable for 5K SIP for 5 to 7 years time horizon.

    How is this fund house? Are there any cons of Parag parikh long term equity fund scheme?

    I invest in SBI blue chip direct and AB sunlife front-line equity direct funds. The current SIP in both funds is 10K each.

    Please help me on the question.

    narayana rao

  20. Hi, I want to invest in Kotak Standard Multicap Fund – Direct Plan (G)

    This SIP will be for 10,000 per month. I already invest in SBI Blue chip fund from last 5 years with SIP of 10,000 per month. I am 27 years old now and want to buy house in 10 yrs.

    Please guide me if this Kotak fund is fine or can you suggest a Multi Cap fund for a goal of 10 years. Thank you!

      1. Hi, I am investing 5k in SBI bluechip for coming 20 years. 5k in recurring deposit for coming 3 years. So for now it is 50:50.

        My monthly take home became 50k now so want to increase investment. I did some research and based on ratings, funds market portfolio, past returns wanted to go with “Kotak Standard Multicap Fund ”

        Also, on the above question from Mr. Narayana, I am also seeing a lot of good news and coverage on Parag parikh fund.

        Is the Parag parikh fund really good for long term investment like 20 years or they are doing some aggressive marketing/promotions?

        Can you please help me with the queries on Kotak and Parag parikh funds. Thank you!

  21. Hi Vasu,
    In an earlier post you recommended ABSL Liquid Direct – G as a preferable Liquid fund and based on that recommendation and associated logical inferences drawn, I invested a good amount in this fund. Considering, your change in approach and recommendations, would you now recommend to come out of that investment or stay invested?
    Thanks and regards,

  22. sir,
    I am investing in mutual funds for past 8 months, i am actually investing through a financial partner firm.The funds I am investing are all regular plans and not direct plans.
    I have noticed that I am also not getting any significant value addition by continuing to be attached to the said firm.
    I think i should change over to direct plans. One thing which I am thinking is to stop further SIP in this after 1 year(4 months later), But would not withdraw the money. Let it be there. I will then start a fresh direct SIP seperately and continue , and would withdraw from both funds when i reach my goals.

    What is your opinion and advise.
    Can you guide me how to switch over to direct plans.

      1. Hi.
        Thanks for reply. How exactly should i go about. ?
        Should i go to individual website of the fund and opt for switch?
        Or just give stop payment instructions to current sip and start afresh in new plans?

  23. hello Basavraj. i am really a keen reader of your blog and your blog inspired me to start my own blog. currently i am facing troubles getting traffic on my site. this will be solved. No worries. on behalf of the world thanking you for creating basunivesh. 🙂 Cheers!

  24. Hello Basavaraj Sir, I am a your loyal and regular website reader and finally thought of asking you a question. I have a portfolio of around 10 lakh and the information is below.

    I am 35 now and have a kid of 4 year old. My monthly income with spouse is 2 lakh. I have home loan of 45 lakh.

    I am doing investment in all four mutual funds from last five years.

    My goal is to have 1 Crore in next 15 years for kid’s education and 2 Crore in next 25 for retirement at the age of 60.

    Can you please review the information and help me if I can complete my goals. Appreciate if you give some suggestions on this portfolio. Thank you.

    5,000 per month – SBI bluechip fund growth direct
    5,000 per month – Reliance Value Fund
    5,000 per month – DSP Blackrock Top 100
    5,000 per month – Birla Sunlife Front Line Equity
    10,000 per month -recurring deposit

    1 lakh FD

    1 Crore Term Insurance family Insurance cover

    Total 5 Lakh LIC cover

      1. Dear Sir, RD was kept more like an emergency fund. Other than my 1 lakh FD. This is a two year RD that I am doing from last 9 months.

        These funds were bought from an advisor. I also did my research on different finance websites and at that time the ratings were 4 to 5 star.

        Could you please advice. Thank you.

        1. Dear Sameer,
          Keep emergency fund separately from your investable corpus. For the investable corpus, you have to create the debt part also. Never run behind ratings. Whether you change funds whenever they change ratings??

          1. Sir, This answer is useful. I will certainly start implementing it.

            Can I continue with these 4 MF’s? or do you advice to change any scheme? Thank you.

  25. Hi Basu sir, i have 2 questions which always i dont understand.
    1.When we say liquid funds invest in bonds which mature at 91 days does this mean for example i had put certain lump sum and check returns after 91 days and is that the max returns it can gain ? Later after 91 days it worn earn much is that how it works.
    2. Usually for liquid funds its said we should withdraw after one year or max years because later it wont earn much? is this correct

    1. Dear Sat,
      1) They continuously reinvest after the maturity and hence there is no change in value for you as an investor.
      2) Check the historical returns of 5 years or more for few funds. You notice that they delivered consistent return with less volatility than the other types of debt funds.

      1. Thanks basu sir…usually what should be max time horizon where one should hold his money and then withdraw for Liquid funds, Ultra short term and overnight funds?

        1. Also missed to ask one more critical question. I am investing in “Franklin Tempelton ultra short duration” and Franklin tempelton low duration growth” fund as SIP from past 6 months are they good to continue ? or better to switch?

  26. Basu,

    Nice article. Thanks for helping laymans like me in the complex financial world.

    One question. I have invested in Indiabulls Liquid Fund. There are some details are similar as given by you. Credit rating shows A1+ , not sure if it is AA or AAA. Can I continue to invest in same or better to switch to one of the funds you have recommended.


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