Liquid funds are debt mutual funds that invest unitholders' money in very short-term market instruments such as Treasury Bills (T-Bills), CBLO, Government Securities (G-Secs) and call money instruments. These investments contain a minuscule amount of default and interest-rate risk.
Although such funds can invest in instruments up to a maturity of 91 days, the actual maturity is usually lower than that.
They are the least risky as well as the least volatile among various debt mutual fund categories, partly due to their investing in instruments with high credit rating and the other because their Net Asset Value (NAV) is not as volatile as the only change in such NAV is mostly the result of the interest income that accrues.
Given their short-term maturities, the underlying investments are rarely traded in the market. They are usually held until maturity. Hence, their NAV only sees a change to the extent of interest income accrued, every day, including weekends.
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