The objective of liquid mutual fund schemes is to invest in short-term money market instruments of good credit quality. The fund predominantly invests in money market instruments and provides investors the returns that are available on these instruments. The investment portfolio is very liquid, and enables investors to hold their investments for very short horizons of a day or more. The liquid funds are normally open-ended. It provides with the following options/schemes, which are sub-products within the liquid fund.
- Overnight Option (Growth): This option is meant to be used by investors with very short-term investment horizon and is fully invested in the call money market.
- Overnight Option (Dividend): This option is meant for investors who have short-term funds to deploy but would like to earn some income on such deployment. The portfolio in this option is invested in short-term floating rate instruments, call markets and in repos. The average maturity of this portfolio is about 8 days. Dividends are declared daily under this option.
- Liquid-fund Option (Growth): This option is meant for investors with short-term funds, but of a slightly longer duration. The average maturity of the portfolio is about 15 days and about 45% of the portfolio is deployed in short-term debt instruments with a fixed rate of return. The balance is invested in short-term floating rate instruments and call markets.
- Liquid-fund Option (Dividend): This option is meant for investors with short-term funds, investment horizon slightly longer, but with the need to earn dividend income. The average maturity of the portfolio is 25 days and about 55% of the portfolio is invested in fixed rate short-term products, with the balance in call money markets and short-term floaters. Dividends are declared weekly under this option.
The liquid fund is an open-ended short-term debt fund. But it provides four variants which have different portfolios, serve different objectives and therefore provide higher levels of return. It is thus possible to combine the generic features and the investment portfolio features to create a variety of mutual fund products.