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What is meant by Liquidity of Funds?

Liquidity of Funds

Liquidity of Funds

Liquid Funds are the types of Funds which can be quickly accessed for your financial requirements. Liquidity of Funds refers to the level of liquidity associated with the type of invested fund.

To understand the level of liquidity, lets look at this example. Your Fixed Deposit funds are more liquid than your Mutual Fund investment. To access the money in Mutual fund takes minimum 2 days, while to access the money in Fixed deposit, it will take hardly 5 minutes. Now a days Fixed deposits can be liquidated online through net banking.

Make your Money work for you

It’s important that we make our money work for us or rather it’s the purpose for us to save money and invest them in various products. A number of investment products are available and it becomes confusing for the investor to select a particular product. The ratio of putting one’s fund in various products is also important.

Factors that affect the choice of various investment products:

  • Amount of fund
  • Tax consideration
  • Return
  • Liquidity
  • Risk appetite

We tend to invest in different products keeping some financial goals in mind. For example, consider the following situation:

Rahul wants to create a fund for his daughter’s higher education. She is 6 and expected to attend college at 18. So, Rahul can opt for investment products which have maturity up to 12 years.

But, it is important to note that all events cannot be foreseen or predicted beforehand, e.g., medical expenses, damage of some resources or it may be as natural that you feel strongly to purchase something and finds it very difficult to resist yourself from buying it.

Here, comes the importance of investing in products which can be redeemed before maturity without any penalty or in simple words investing in  liquid products

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Sreya Ray is working as a Manager at State Bank of India. She is a voracious reader and a passionate writer. Her life is complete with her daughter and the support of her husband and the inspiration of her parents. Sreya loves multi-tasking and is a dreamer. If she don't create anything on a day,She feels that she had wasted my day.


  1. Liquidity of funds means the money when needed the most is there without any extra expense. This liquidity is most available in fixed deposit savings. But then fixed deposit savings do not have good interest rate as compared to MF’s. If appetite for risk is prevalent than investing in deposits which gives higher return is recommended. But a mixed saving is adviseable by experts.


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