InvestorQ : What are the Key differences between debt funds and liquid funds?
seema Upadhyaya made post

What are the Key differences between debt funds and liquid funds?

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sara Kunju answered.
1 year ago

What is Debt Fund?
Debt fund is basically an investment in a variety of fixed income instruments such as government bonds, treasury bills, certificate of deposit, commercial paper, money market instruments, and corporate instruments. Debts funds are available in various categories based on the maturity profile. In totality, there are 16 categories of debt funds that include liquid funds, short-duration funds, ultra-short duration funds, gilt funds, and dynamic bond funds. 

What is Liquid Fund?
It is among one of the categories of Debt-fund. Investment in liquid funds is having a maturity period of not more than 91 days. Hence, one can say these are an alternative to keeping your money idle in the savings account. One can also consider liquid fund for any emergency or contingency, as the cash is readily available to withdraw from them.

What is the difference between Liquid fund and Debt-fund?
The main difference between both the funds is liquid funds have a maturity profile of 91 days, while any other debt-fund do not have such restriction. Liquidity funds, as the name suggests, are easy to redeem. This means you can have cash within 30 minutes of redemption into your account. While redemption of any other debt fund takes at least 2-3 days to process amount into your account.

As far as the risk is considered, liquid funds have the lowest risk involved. Any other debt fund involves a higher risk as compared to liquid funds. Hence, all liquid funds are debt fund, but not all debt funds are liquid funds.+