Liquid Fund: How SEBI’s 91-Day Rule, Cut-Offs and Exit Load Work

A liquid fund is where a lot of Indian investors, and plenty of companies, park money they will need soon. It is a debt mutual fund with one defining limit: it can only buy debt and money market securities that mature within 91 days. That single rule shapes everything else about how the fund behaves, from how little its NAV wobbles to why it suits cash you might want back next week.

We are going to walk through what SEBI actually requires of these funds, how purchases and redemptions get priced, what the small exit load in the first week costs you, and where liquid funds fit next to a savings account or an overnight fund. Every rule below comes from SEBI’s Master Circular for Mutual Funds dated March 20, 2026, unless we say otherwise.

What makes a liquid fund a liquid fund

SEBI’s scheme categorisation table describes the category plainly: investment in only debt and money market securities with maturity of up to 91 calendar days, and the scheme has to call itself “an open ended liquid scheme”. Paragraph 13.2.1 of the master circular repeats it from the other side. Liquid schemes may buy debt and money market securities with maturity of up to 91 days only, and that applies to inter-scheme transfers as well.

The circular also spells out how maturity is counted. For a security that repays principal in one go, maturity means residual maturity. For a security with put and call options, daily or otherwise, the residual maturity cannot be greater than 91 calendar days. If a maturity date falls on a non-business day, it settles on the next business day.

Why does 91 days matter so much? Because the price of a bond reacts to interest rate changes roughly in proportion to how long it has left to run. A paper that matures in six weeks barely moves when yields shift. A ten-year bond can move a lot. By capping maturity, SEBI keeps interest rate risk in a liquid fund small. If you want the longer version of that relationship, our piece on money market funds covers the next category up the maturity ladder.

The 91-day cap is the whole personality of a liquid fund. Short paper, small price swings, quick access.

The safety rails SEBI added

Short maturity alone does not make a fund safe. A 60-day commercial paper from a weak issuer can still default. So SEBI layered on a risk management framework for liquid and overnight funds, set out in paragraph 5.6 of the master circular:

• A 20% liquid-asset floor. Liquid funds must hold at least 20% of net assets in liquid assets, defined as cash, government securities, T-bills and repo on government securities. If the fund falls below 20%, the AMC has to restore compliance before making any further investments.
• No parking in bank fixed deposits. Liquid and overnight funds cannot park money pending deployment in short-term deposits of scheduled commercial banks.
• No structured obligations or credit enhancements. They cannot invest in debt securities with structured obligation (SO) or credit enhancement (CE) ratings. Debt securities carrying a government guarantee are excluded from this restriction.
• A first-week exit load. Funds must levy an exit load on investors who exit within 7 calendar days, following a graded minimum prescribed by AMFI in consultation with SEBI.

Compare that with other open-ended debt schemes. Paragraph 5.7.1 asks most of them to hold at least 10% in the same kind of liquid assets, and liquid funds are among the categories exempted from that 10% rule because they already carry the stricter 20% floor.

How a liquid fund is priced every single day

Most mutual funds publish a NAV only on business days. Liquid funds are different. Paragraph 9.3.1 says AMCs must calculate NAV for each calendar day for liquid and overnight schemes, which means your money keeps accruing over weekends and holidays too.

The cut-off timings are where people get tripped up. Here is how the master circular sets them for liquid and overnight funds.

When you invest

• If your application arrives by 1:30 pm on a business day and the money reaches the scheme’s bank account by 1:30 pm, you get the closing NAV of the day immediately before the day of receipt.
• If the application comes after 1:30 pm but the money still reaches the scheme by 1:30 pm, you get the NAV of the day immediately before the next business day.
• If the money itself lands after 1:30 pm, you get the NAV of the day immediately before the day the funds become available for use.

That “day before” quirk is not a typo. A liquid fund NAV reflects interest earned up to the end of a day, so assigning the previous day’s NAV to money that arrives today means you start earning from today.

When you redeem

• A redemption request received by 3:00 pm on a business day gets the NAV of the day immediately preceding the next business day.
• A request after 3:00 pm gets the next business day’s NAV.

The circular has a separate 7:00 pm online cut-off, but that applies to overnight funds, not liquid funds. Worth keeping straight if you hold both.

Worked example: what the first-week exit load really costs

The graded exit load that AMFI prescribed shows up word for word in scheme documents. Here it is as printed in the Mirae Asset Liquid Fund scheme information document hosted on AMFI’s portal, as a percentage of redemption or switch proceeds:

Now let us put rupees on it. These are illustrative numbers we have made up for the arithmetic, not data from any fund.

Say Ramesh, who runs a small trading firm in Pune, parks ₹10,00,000 in a liquid fund on a Monday because a supplier payment is due later in the week. The supplier asks for money early and he redeems the whole amount on day 2.

• Exit load rate on day 2: 0.0065%
• Load in rupees: ₹10,00,000 × 0.0065% = ₹10,00,000 × 0.000065 = ₹65

If he had waited until day 6, the rate would be 0.0045%, so ₹45. On day 7 or later it is zero. On a ₹10 lakh ticket the difference between day 1 and day 6 is ₹25. The load exists to discourage very short in-and-out money, not to punish an investor who genuinely needs cash.

Two more rules from paragraph 11.7 of the master circular are handy here. The exit load charged is credited back to the scheme, so remaining investors benefit. And exit load is not charged on bonus units or units allotted on reinvestment of dividends.

Instant Access Facility: same-day cash, with limits

Some AMCs offer an Instant Access Facility, or IAF, which credits redemption money to your bank account on the same day. Paragraph 15.11 sets the terms:

• It is only for resident individual investors, only through an online mechanism, and only in liquid and overnight schemes.
• The limit is ₹50,000 or 90% of the latest value of your investment in the scheme, whichever is lower, per day, per scheme, per investor.
• If the IAF request comes in by 3:00 pm, you get the lower of the previous calendar day’s NAV and that day’s NAV. After 3:00 pm, you get the lower of that day’s NAV and the next calendar day’s NAV.

A quick example, again with made-up numbers. Priya has ₹40,000 in a liquid fund. Ninety percent of ₹40,000 is ₹36,000, which is lower than ₹50,000, so her instant limit that day is ₹36,000. Her colleague with ₹5,00,000 in the same scheme gets ₹50,000, because 90% of his holding (₹4,50,000) is far above the ₹50,000 cap.

Notice the “lower of two NAVs” rule. It protects the fund. Since the money goes out before the fund can sell anything, the investor bears the small timing cost rather than everyone else in the scheme.

IAF is an emergency tap, not a second bank account. The cap is the lower of ₹50,000 or 90% of what you hold, per scheme, per day.

Liquid fund vs overnight fund vs savings account

These three get compared all the time, so here is how we think about them.

Overnight funds are the tightest category. As our overnight fund explainer covers, they hold securities that mature in one day, so interest rate and credit risk are about as low as mutual funds get. They share the calendar-day NAV, the cut-off structure and the risk management rules with liquid funds, but the exit load requirement in paragraph 5.6.5 is written for liquid funds.

Liquid funds stretch to 91 days. That gives the manager more room to hold paper with a few weeks or months left to run, at the cost of a little more credit and rate risk.

A savings account is a bank deposit, not a market-linked product. Your balance does not fluctuate with bond prices. A liquid fund NAV can, in principle, fall if an issuer it holds is downgraded or defaults. That is exactly why the 20% liquid-asset floor and the ban on structured obligation paper exist.

Where liquid funds fit in a trader’s plan

For traders and active investors, a liquid fund is often the holding pen between trades. Money from a booked profit sits there while you wait for the next setup, rather than idling in a current account. If you treat cash as a position in its own right, which our guide on risk management in trading argues you should, then where you keep it matters.

A few practical habits help:

• Mind the clock. If you need money on a particular day, place the redemption before the 3:00 pm cut-off on a business day and plan around the next-business-day NAV.
• Respect the first week. If you know the money is for a three-day gap, the exit load is tiny, but you should still know it is there.
• Read the portfolio, not just the label. Two liquid funds can both follow the 91-day rule and still hold quite different issuers. The portfolio disclosures that AMCs publish show what is inside.
• Check the scheme document. Exit load tables, IAF availability and minimum investment amounts are all in the scheme information document. The Mirae document we cited, for instance, lists a minimum of ₹5,000 and multiples of ₹1 after that on a continuous basis; other schemes set their own amounts.

Quick recap of the rules

• Maturity cap: debt and money market securities up to 91 days only.
• At least 20% of net assets in cash, government securities, T-bills and government securities repo.
• No short-term bank deposits pending deployment, and no SO or CE rated paper unless government guaranteed.
• NAV every calendar day, with a 1:30 pm purchase cut-off and a 3:00 pm redemption cut-off on business days.
• Graded exit load in the first six days, nil from day 7.
• Instant access up to ₹50,000 or 90% of holding value, whichever is lower, for resident individuals.

Liquid funds are not exciting, and that is the point. Once you understand the 91-day cap and the timing rules, they become a dependable place for money with a short fuse.

Disclaimer: This article is for educational purposes only and is not investment advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully and consult a SEBI-registered adviser before investing.