Liquid funds vs. Liquid ETF/Overnight Funds

Post the series of rate cuts by the RBI in the last one year, the returns of Liquid funds have measurably reduced.

Also, there were a couple of regulatory changes that have reduced the attractiveness of liquid funds as an option to park funds vs. overnight funds.

  1. Starting April 2020, all bonds must be compulsorily marked to market.
  2. SEBI recently introduced a graded exit load of 7 days for Liquid funds and the AMCs will implement this soon.


  1. Liquid fund: Investment in Debt and money market securities with maturity of upto 91 days only
  2. Overnight fund: Investment in overnight securities having maturity of 1 day

Here’s how Liquid funds stack up against Liquid ETF/Overnight funds

Liquid ETFs are similar to Overnight Funds and predominantly lend overnight.

Returns profile of Liquid MF and Liquid ETF/Overnight fund on the basis of Point to Point and Rolling Returns.

For Liquid MF category, CRISIL Liquid Fund Index has been used as a proxy and for the Liquid ETF Overnight category, Nifty 1D Rate Index has been used as a proxy.

Point to Point Returns –

Data till 31st August 2019
Index Name 1 Day 7 Day 1 Month 3 Months 6 Months 1 Year
CRISIL Liquid Fund Index (a) 5.80 5.80 6.24 6.73 7.16 7.50
Nifty 1D Rate Index(b) 5.19 5.22 5.36 5.58 5.88 6.20
* Less than 1 year Simple Annualized returns, Greater than or Equal to 1 year Compound Annualized returns

For Overnight Fund - Nifty 1D Rate Index.

Rolling returns for 5 day and 10 day rolling period, with rolling frequency daily. Time Frame considered is 1st January 2019 to 30th August 2019 -

Rolling Period 5 days, rolling frequency daily

CRISIL Liquid Fund Index Nifty 1D Rate Index
Minimum 4.71 5.19
Maximum 11.64 6.58
Average 7.1 5.94
Std.Deviation 1.01 0.36

Rolling Period 10 days, rolling frequency daily

CRISIL Liquid Fund Index Nifty 1D Rate Index
Minimum 5.63 5.21
Maximum 9.37 6.48
Average 7.12 5.95

Inference: - Clearly the returns for Liquid MF category would be higher. On the other hand, looking at the standard deviation of returns above, on the return risk adjusted basis, we could say that Nifty 1D Rate Index (used for Overnight Fund) looks better than CRISIL Liquid fund Index.


If i sell liquid funds today, when do i get “free cash” to buy some stocks etc at the earliest. Is it same day, next or T+2(this is unlikely)

T+1 - next day

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Thanks, it showed T1 in coin but i wasn’t sure bcos of the 1.30pm clause. Had some overnight too.

@siva is icici prudential fund which is shown on console part of liquid funds , or can you suggest other liquid funds .to park for shorter time and pledge to get margins

It’s an overnight fund. Overnight funds predominantly invest only in securities that have a 1 day maturity. Liqud funds on the other had can invest in securities with maturities of up to 91days.

If I’ve invested & pledged in the Overnight fund, and after some time, decide to invest & pledge some money in that fund again, would I need to unpledge my previous holding & pledge all of them together? Or I can pledge the 2nd transaction separately?

Yes, you can

can i pledge it in the same way as liquid bees or dsp liquid etf .

Hi @Bhuvan,

How do Overnight Funds and Liquid ETFs differ? As you say, they are similar.

One difference may be that the Liquid ETF is exchange-traded, and the Overnight Fund is perhaps not. If so, is that the only difference, and what is the significance of that?

In terms of the securities, they are similar. Taxation etc differs.

Can any liquid etf be used as cash collateral for margin trading in F&O segment? Also is it considered as cash margin as now you need to have atleast 50% cash margin and balance as securities. Also do the returns of all the various liquid etfs vary or are they the same? If they vary, where can I see their historical returns?