Finding investment opportunities that offer liquidity must be a priority. Liquidity is the quality of purchasing assets or paying debts quickly without significant losses. You don’t have to wait long to recover your principal when selling an investment. Liquid funds are mutual funds that invest in fixed income and money-market instruments with a credit rating of AA or higher.

Liquid funds are ideal for investors with excess cash looking to invest it in short-term assets that provide a better return than a traditional savings account. They function similarly to other liquid debt funds. The main distinction between this and other debt funds is that these deposits are only for a brief period.

The investments may take the form of bonds, government securities, treasury bills, debentures, etc. They are referred to as debt instruments since they function as a form of borrowing for governments, banks, and businesses. When the market values of these securities fluctuate, the liquid fund’s net asset value (NAV) adjusts as well.