The well managed funds are. I am assuming you’d are asking this because of the negative returns in the past week? If yes then, that has nothing do with a credit event in the funds. This was because of a few reasons:
- There was a negative return over a general flight to safety given the Corona Virus situation.
- During the fiscal year corporate entities tend to redeem liquid funds and hold cash and then invest back in April.
- There has been huge FII selling in both equities and debt causing yields to spike up.
- General tightness of liquidity in the bond markets
The answer here is it depends. The well-managed funds are safe, but there will always be some amount of credit risk compared to an FD. When choosing a liquid fund don’t choose a fund based on JUST THE HIGHEST RETURNS. In debt, higher returns = almost always equal higher risk . Stick to the top 5-10 AMCs and stick to the biggest liquid funds. These funds hold 200+ securities in a fund and even if there is a credit event, the impact will be minuscule.
There are funds like Quantum Liquid and PPFAS liquid, which don’t invest in private bonds at all and stick to PSU papers. You can explore them as well.
Hope this answers your question.