The challenges for liquid funds

From an annualised return of around 7-8 percent at one point, liquid funds’ 1-year returns have dropped significantly over the years. For the past six months, its 1-year return has been around 3 to 3.7 percent. These funds are ideal to park short-term cash and also to park your lumpsum in systematic transfer plans. What ails them? One key reason is the fall in the short-term interest rates. The onset of Covid-19 has too led to reduced interest rates that have impacted liquid funds’ returns. Over the years, regulatory rules have also tightened, making them more true-to-label. But they are still ideal as their risk levels are least and that’s what you need for parking your excess cash.