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Liquid Fund Vs Debt Fund

Updated on October 1, 2025 , 29933 views

Many people always get confused whether Debt fund and Liquid Funds are different. However, it is not the case. Debt funds refer to the Mutual Fund category that invests its collective pool of money in fixed Income securities. The liquid fund is a subset of debt fund scheme that invests its fund in fixed securities having a very short maturity tenure. Though debt fund is the parent category and the liquid fund is a subset of it nevertheless; there exists a lot of difference between liquid funds and other categories of Fixed Income Mutual Fund schemes. So, let us understand the differences between liquid funds and debt funds with respect to various parameters such as returns, risk, Underlying asset Portfolio, and much more, through this article.

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What are Debt Funds?

Debt funds invests its corpus in various fixed income instruments. Some of these instruments in which debt funds invest its corpus include treasury bills, government Bonds, corporate bonds, government securities, commercial papers, certificate of deposits, and much more. Debt funds are classified into various categories depending on the maturity profile of the underlying securities forming part of its portfolio. These categories are liquid funds, short-term funds, ultra short-term funds, Gilt Funds, Dynamic Bond Funds and so on. People having a low-risk appetite can choose to invest in debt funds. It is also suitable for investors whose investment tenure is the short and medium term.

What are Liquid Funds?

Liquid Fund is a subset of debt funds. The liquid fund invests a major corpus of its portfolio in fixed income securities whose maturity tenure is very less. The maturity of these securities is less than or equal to 91 days. Liquid funds are considered to be one of the safe Mutual Fund avenues. People having idle funds lying in their Bank accounts can choose to invest in liquid funds to earn more income. In addition, these schemes earn more revenue as compared to a Savings Account.

liquid-debt-funds

Liquid Funds Vs Debt Funds: Know the Differences

Though the liquid fund is a part of debt funds yet, it has its own features as compared to other debt fund categories. So, let us understand these differences on the Basis of various parameters.

Maturity Profile of Underlying Assets

One of the primary Factor that differentiates a liquid fund and a debt fund is its underlying portfolio. The fixed income securities forming part of a liquid fund’s portfolio have a maximum maturity profile of less than or equal to 91 days. In addition, these securities are generally held till maturity. However, this restriction does not apply to other debt funds. The maturity profile of underlying assets forming part of debt funds can be a combination of short and long-term instruments based on the fund’s underlying objective.

Returns

The returns in case of liquid funds are considered to be stable as they generate stable returns. However, in other debt funds, the returns are considered to fluctuate depending on the interest rate movements in the country.

Liquidity

Liquid funds are considered to have high liquidity as compared to other Mutual Fund schemes. Many AMCs even offer the option of instant Redemption in case of liquid funds. Through instant redemption Facility, people can get their money into bank accounts within 30 minutes since the time they place the order. On the contrary, in case of other debt funds, the liquidity is not as high as liquid funds. People will get their maturity proceeds the next working day after placing the order.

Risk

The risk component is low in case of liquid funds. This is because maturity tenure of the underlying securities is very less due to which they carry low-interest rate and credit risk. In addition, these securities are generally held till maturity instead of trading. On the other hand, other debt instruments are exposed to both credit and interest rate risk. As a consequence, the other debt fund schemes carry more risk as compared to liquid funds.

Taxation

Since, the liquid fund is a part of the debt fund, the taxation implications of debt funds is applicable even to liquid funds. In case of debt funds, the short-term Capital Gain is applicable if the investment is redeemed within three years from the date of purchase and long-term Capital gain is applicable if the investment is redeemed after three years from the date of purchase. The short-term capital gain is taxable as per the individual’s regular tax slab while; the long-term capital gain is taxable at 20% with indexation benefits.

The table given below summarizes the comparison between debt funds and liquid funds.

Parameters Liquid Funds Debt Funds
Maturity Profile of Underlying Assets The maturity profile of the assets is less than or equal to 91 days There is no such criteria on the maturity profile of underlying assets
Returns Generally Stable Returns Keep on fluctuating depending on the interest rate scenario
Liquidity High liquidity Low as compared to Liquid Funds
Risk Low as compared to other debt funds High as compared to liquid funds
Taxation Same as Debt Funds Short-term: Taxed as per individual’s slab rates Long-term: Taxed at 20% and had taxation benefits

Best Funds to Invest in 2025

After looking at the differentiating factors between debt funds and liquid funds, you can have a look some of the best funds that can be considered for investment under both liquid fund category and debt fund category as per your requirements.

Best Debt Funds

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)2024 (%)Debt Yield (YTM)Mod. DurationEff. Maturity
Axis Credit Risk Fund Growth ₹21.8996
↑ 0.02
₹3661.94.48.77.987.93%2Y 3M 18D2Y 9M 4D
PGIM India Credit Risk Fund Growth ₹15.5876
↑ 0.00
₹390.64.48.43 5.01%6M 14D7M 2D
UTI Banking & PSU Debt Fund Growth ₹22.3386
↑ 0.02
₹8131.33.98.17.67.66.61%1Y 8M 12D1Y 11M 8D
Aditya Birla Sun Life Savings Fund Growth ₹558.157
↑ 0.26
₹21,5211.53.67.87.57.96.76%5M 8D6M 11D
HDFC Corporate Bond Fund Growth ₹33.0498
↑ 0.04
₹35,70013.27.77.98.67.06%4Y 2M 1D4Y 4M 28D
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 3 Oct 25

Research Highlights & Commentary of 5 Funds showcased

CommentaryAxis Credit Risk Fund PGIM India Credit Risk FundUTI Banking & PSU Debt FundAditya Birla Sun Life Savings FundHDFC Corporate Bond Fund
Point 1Bottom quartile AUM (₹366 Cr).Bottom quartile AUM (₹39 Cr).Lower mid AUM (₹813 Cr).Upper mid AUM (₹21,521 Cr).Highest AUM (₹35,700 Cr).
Point 2Established history (11+ yrs).Established history (11+ yrs).Established history (11+ yrs).Oldest track record among peers (22 yrs).Established history (15+ yrs).
Point 3Top rated.Rating: 5★ (upper mid).Rating: 5★ (lower mid).Rating: 5★ (bottom quartile).Rating: 5★ (bottom quartile).
Point 4Risk profile: Moderate.Risk profile: Moderate.Risk profile: Moderate.Risk profile: Moderately Low.Risk profile: Moderately Low.
Point 51Y return: 8.75% (top quartile).1Y return: 8.43% (upper mid).1Y return: 8.08% (lower mid).1Y return: 7.84% (bottom quartile).1Y return: 7.74% (bottom quartile).
Point 61M return: 0.99% (top quartile).1M return: 0.27% (bottom quartile).1M return: 0.72% (lower mid).1M return: 0.56% (bottom quartile).1M return: 0.85% (upper mid).
Point 7Sharpe: 2.16 (upper mid).Sharpe: 1.73 (lower mid).Sharpe: 1.46 (bottom quartile).Sharpe: 3.66 (top quartile).Sharpe: 0.68 (bottom quartile).
Point 8Information ratio: 0.00 (top quartile).Information ratio: 0.00 (upper mid).Information ratio: 0.00 (lower mid).Information ratio: 0.00 (bottom quartile).Information ratio: 0.00 (bottom quartile).
Point 9Yield to maturity (debt): 7.93% (top quartile).Yield to maturity (debt): 5.01% (bottom quartile).Yield to maturity (debt): 6.61% (bottom quartile).Yield to maturity (debt): 6.76% (lower mid).Yield to maturity (debt): 7.06% (upper mid).
Point 10Modified duration: 2.30 yrs (bottom quartile).Modified duration: 0.54 yrs (upper mid).Modified duration: 1.70 yrs (lower mid).Modified duration: 0.44 yrs (top quartile).Modified duration: 4.17 yrs (bottom quartile).

Axis Credit Risk Fund

  • Bottom quartile AUM (₹366 Cr).
  • Established history (11+ yrs).
  • Top rated.
  • Risk profile: Moderate.
  • 1Y return: 8.75% (top quartile).
  • 1M return: 0.99% (top quartile).
  • Sharpe: 2.16 (upper mid).
  • Information ratio: 0.00 (top quartile).
  • Yield to maturity (debt): 7.93% (top quartile).
  • Modified duration: 2.30 yrs (bottom quartile).

PGIM India Credit Risk Fund

  • Bottom quartile AUM (₹39 Cr).
  • Established history (11+ yrs).
  • Rating: 5★ (upper mid).
  • Risk profile: Moderate.
  • 1Y return: 8.43% (upper mid).
  • 1M return: 0.27% (bottom quartile).
  • Sharpe: 1.73 (lower mid).
  • Information ratio: 0.00 (upper mid).
  • Yield to maturity (debt): 5.01% (bottom quartile).
  • Modified duration: 0.54 yrs (upper mid).

UTI Banking & PSU Debt Fund

  • Lower mid AUM (₹813 Cr).
  • Established history (11+ yrs).
  • Rating: 5★ (lower mid).
  • Risk profile: Moderate.
  • 1Y return: 8.08% (lower mid).
  • 1M return: 0.72% (lower mid).
  • Sharpe: 1.46 (bottom quartile).
  • Information ratio: 0.00 (lower mid).
  • Yield to maturity (debt): 6.61% (bottom quartile).
  • Modified duration: 1.70 yrs (lower mid).

Aditya Birla Sun Life Savings Fund

  • Upper mid AUM (₹21,521 Cr).
  • Oldest track record among peers (22 yrs).
  • Rating: 5★ (bottom quartile).
  • Risk profile: Moderately Low.
  • 1Y return: 7.84% (bottom quartile).
  • 1M return: 0.56% (bottom quartile).
  • Sharpe: 3.66 (top quartile).
  • Information ratio: 0.00 (bottom quartile).
  • Yield to maturity (debt): 6.76% (lower mid).
  • Modified duration: 0.44 yrs (top quartile).

HDFC Corporate Bond Fund

  • Highest AUM (₹35,700 Cr).
  • Established history (15+ yrs).
  • Rating: 5★ (bottom quartile).
  • Risk profile: Moderately Low.
  • 1Y return: 7.74% (bottom quartile).
  • 1M return: 0.85% (upper mid).
  • Sharpe: 0.68 (bottom quartile).
  • Information ratio: 0.00 (bottom quartile).
  • Yield to maturity (debt): 7.06% (upper mid).
  • Modified duration: 4.17 yrs (bottom quartile).

Best Liquid Funds

FundNAVNet Assets (Cr)1 MO (%)3 MO (%)6 MO (%)1 YR (%)2024 (%)Debt Yield (YTM)Mod. DurationEff. Maturity
Indiabulls Liquid Fund Growth ₹2,562.78
↑ 0.56
₹3030.51.436.87.45.88%1M 3D1M 3D
PGIM India Insta Cash Fund Growth ₹345.02
↑ 0.07
₹5270.51.436.87.35.83%20D22D
JM Liquid Fund Growth ₹72.2922
↑ 0.01
₹2,6950.51.436.77.25.83%1M 7D1M 9D
Axis Liquid Fund Growth ₹2,950.92
↑ 0.59
₹37,1220.51.43.16.87.45.9%1M 9D1M 11D
Tata Liquid Fund Growth ₹4,173.89
↑ 0.82
₹20,4040.51.436.87.35.94%1M 9D1M 9D
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 3 Oct 25

Research Highlights & Commentary of 5 Funds showcased

CommentaryIndiabulls Liquid Fund PGIM India Insta Cash FundJM Liquid FundAxis Liquid FundTata Liquid Fund
Point 1Bottom quartile AUM (₹303 Cr).Bottom quartile AUM (₹527 Cr).Lower mid AUM (₹2,695 Cr).Highest AUM (₹37,122 Cr).Upper mid AUM (₹20,404 Cr).
Point 2Established history (13+ yrs).Established history (18+ yrs).Oldest track record among peers (27 yrs).Established history (15+ yrs).Established history (21+ yrs).
Point 3Top rated.Rating: 5★ (upper mid).Rating: 5★ (lower mid).Rating: 4★ (bottom quartile).Rating: 4★ (bottom quartile).
Point 4Risk profile: Low.Risk profile: Low.Risk profile: Low.Risk profile: Low.Risk profile: Low.
Point 51Y return: 6.83% (upper mid).1Y return: 6.82% (lower mid).1Y return: 6.70% (bottom quartile).1Y return: 6.85% (top quartile).1Y return: 6.81% (bottom quartile).
Point 61M return: 0.47% (bottom quartile).1M return: 0.49% (top quartile).1M return: 0.47% (bottom quartile).1M return: 0.49% (upper mid).1M return: 0.48% (lower mid).
Point 7Sharpe: 3.54 (lower mid).Sharpe: 3.57 (top quartile).Sharpe: 2.95 (bottom quartile).Sharpe: 3.41 (bottom quartile).Sharpe: 3.56 (upper mid).
Point 8Information ratio: -1.18 (bottom quartile).Information ratio: -0.64 (lower mid).Information ratio: -2.17 (bottom quartile).Information ratio: 0.00 (top quartile).Information ratio: 0.00 (upper mid).
Point 9Yield to maturity (debt): 5.88% (lower mid).Yield to maturity (debt): 5.83% (bottom quartile).Yield to maturity (debt): 5.83% (bottom quartile).Yield to maturity (debt): 5.90% (upper mid).Yield to maturity (debt): 5.94% (top quartile).
Point 10Modified duration: 0.09 yrs (upper mid).Modified duration: 0.06 yrs (top quartile).Modified duration: 0.10 yrs (lower mid).Modified duration: 0.11 yrs (bottom quartile).Modified duration: 0.11 yrs (bottom quartile).

Indiabulls Liquid Fund

  • Bottom quartile AUM (₹303 Cr).
  • Established history (13+ yrs).
  • Top rated.
  • Risk profile: Low.
  • 1Y return: 6.83% (upper mid).
  • 1M return: 0.47% (bottom quartile).
  • Sharpe: 3.54 (lower mid).
  • Information ratio: -1.18 (bottom quartile).
  • Yield to maturity (debt): 5.88% (lower mid).
  • Modified duration: 0.09 yrs (upper mid).

PGIM India Insta Cash Fund

  • Bottom quartile AUM (₹527 Cr).
  • Established history (18+ yrs).
  • Rating: 5★ (upper mid).
  • Risk profile: Low.
  • 1Y return: 6.82% (lower mid).
  • 1M return: 0.49% (top quartile).
  • Sharpe: 3.57 (top quartile).
  • Information ratio: -0.64 (lower mid).
  • Yield to maturity (debt): 5.83% (bottom quartile).
  • Modified duration: 0.06 yrs (top quartile).

JM Liquid Fund

  • Lower mid AUM (₹2,695 Cr).
  • Oldest track record among peers (27 yrs).
  • Rating: 5★ (lower mid).
  • Risk profile: Low.
  • 1Y return: 6.70% (bottom quartile).
  • 1M return: 0.47% (bottom quartile).
  • Sharpe: 2.95 (bottom quartile).
  • Information ratio: -2.17 (bottom quartile).
  • Yield to maturity (debt): 5.83% (bottom quartile).
  • Modified duration: 0.10 yrs (lower mid).

Axis Liquid Fund

  • Highest AUM (₹37,122 Cr).
  • Established history (15+ yrs).
  • Rating: 4★ (bottom quartile).
  • Risk profile: Low.
  • 1Y return: 6.85% (top quartile).
  • 1M return: 0.49% (upper mid).
  • Sharpe: 3.41 (bottom quartile).
  • Information ratio: 0.00 (top quartile).
  • Yield to maturity (debt): 5.90% (upper mid).
  • Modified duration: 0.11 yrs (bottom quartile).

Tata Liquid Fund

  • Upper mid AUM (₹20,404 Cr).
  • Established history (21+ yrs).
  • Rating: 4★ (bottom quartile).
  • Risk profile: Low.
  • 1Y return: 6.81% (bottom quartile).
  • 1M return: 0.48% (lower mid).
  • Sharpe: 3.56 (upper mid).
  • Information ratio: 0.00 (upper mid).
  • Yield to maturity (debt): 5.94% (top quartile).
  • Modified duration: 0.11 yrs (bottom quartile).

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Conclusion

Thus, it can be said that it is both the funds have their own merits and demerits. However, it finally lies on the individuals on which scheme to choose. People before choosing any schemes need to assess whether the fund’s objective is in-line with their objective or not. Also, people should understand the modalities of the scheme completely before Investing in it. They can even consult a financial advisor to ensure that their investment gives them maximum returns.

Disclaimer:
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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