Liquid funds are the least risky of all mutual funds because it has been designed—and is meant to operate—as a proxy for your savings bank account.

But with liquid funds giving slightly higher returns than your bank account, this is a good vehicle to park your short-term cash. Additionally, many liquid funds allow you instant redemption and you get your money in half an hour, at most.

Returns from liquid funds aren’t as volatile as other debt funds because much of its underlying securities don’t get marked to market prices. Liquid funds are also used as a tool to invest in equity funds by setting up a systematic transfer plan.

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