How Do Liquid Mutual Funds Work?

Liquid mutual funds pool money from investors to invest in a diversified portfolio of highly secure, short-term debt instruments like Treasury Bills, Commercial Papers, and Certificates of Deposit. These instruments typically mature within 91 days, ensuring high liquidity and relative stability.

The focus on high-credit-quality papers and short maturity periods helps maintain steady returns while minimizing risks. Professional fund managers actively manage the portfolio to optimize returns within the safety framework, making thesemutual funds suitable for various short-term investment needs.