The Nuances of Liquid and Liquid Plus Funds

Mutual fund schemes known as liquid funds /money market funds/cash funds and ultra short-term bond funds/liquid plus funds are options for parking funds for the short term.They allow for a high degree of liquidity.They are alternatives to keeping money in a savings bank account or a short term bank fixed deposit.

Liquid funds invest in money market instruments of residual maturity up to 91 days.Liquid funds have the lowest volatility in returns among all categories of mutual funds because there is there is no mark-to-market (MTM) valuation of the portfolio on a daily basis unless there is a trade in the secondary market in the underlying security .Practically there is no trade in money-market instruments and valuation of daily NAV happens on an accrual basis, i.e., by adding the coupon accrued for the day without any mark-to-market impact. Read more of this post