Liquid Funds for Your Emergency Fund

A liquid fund is a useful place for money you may need soon but not today. It can complement a savings account rather than replace one.

How do liquid funds work?

They lend for very short periods to governments, banks and strong companies, with SEBI limiting holdings to maturities of up to 91 days. This keeps price swings small. They can still lose value in rare events, such as a borrower default.

How fast can I withdraw?

• Normal redemption: money usually reaches your bank the next working day.
• Instant redemption: some funds allow up to ₹50,000, or 90% of your folio value if lower, per day.
• Exit load: a small charge applies if you withdraw within seven days of investing.

How do they compare with a savings account or FD?

How should I use one in an emergency fund?

Keep about a month of expenses in your savings account for immediate needs, and the rest of your emergency fund in a liquid fund or sweep-in FD. Choose a fund from a large fund house with high-quality holdings, and avoid chasing the highest yield. Higher yield in a liquid fund usually signals more risk.

What else can a liquid fund do?

It can hold money for an STP into equity funds, which is useful when investing a large sum gradually, or for short-term goals like an upcoming tax payment.