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Parking your surplus money for a very short time-frame in liquid funds may seem like a good idea as they offer relatively better returns than a current account.
Liquid schemes were the obvious choice for weekend parking. They used to generate significantly higher returns— around 7%—compared to 0% given by the current accounts.
Liquid funds invest only in debt securities with a residual maturity of less than or equal to 91 days. The lower maturity mitigates interest rate risk, along with credit risk (default risk). Liquid funds invest in fixed maturity interest-paying instruments, such as call money, CBLO, Repo, Reverse Repo, commercial papers (CP), non-convertible debentures (NCD), certificates of deposit (CD) and Treasury Bills (TBs).
The objective of liquid funds is to provide the investors with an opportunity to earn returns, without compromising on the safety and liquidity of the investment.