| Definition |
A type of debt mutual fund investing in short-term money market instruments with high liquidity and low risk. |
A mutual fund that primarily invests in stocks and aims for capital appreciation over the long term. |
| Investment Objective |
Preserve capital and provide liquidity with moderate returns. |
Generate long-term capital growth through equity investments. |
| Risk Level |
Low risk due to short-term instruments and high credit quality. |
High risk due to market volatility and stock price fluctuations. |
| Returns |
Generally low but stable returns, reflecting short-term interest rates. |
Potentially high returns over long periods, but with greater variability. |
| Investment Horizon |
Suitable for short-term parking of funds (days to months). |
Suitable for long-term investments (5+ years). |
| Liquidity |
Very high liquidity; funds can be redeemed quickly, often same-day or next-day. |
Moderate liquidity; redemptions depend on market conditions and NAV calculation. |
| Taxation |
Short-term capital gains taxed as per income slab; long-term gains after 3 years taxed at 20% with indexation. |
Short-term gains (less than 1 year) taxed at 15%; long-term gains over ₹1 lakh taxed at 10% without indexation. |
| Volatility |
Very low volatility. |
High volatility linked to stock market movements. |
| Suitability |
Ideal for investors seeking safety, liquidity, and short-term parking of surplus funds. |
Ideal for investors willing to take risk for higher returns and capital appreciation. |
| Examples of Instruments |
Treasury bills, commercial papers, certificates of deposit, and other short-term debt. |
Stocks of large-cap, mid-cap, and small-cap companies across sectors. |
| Expense Ratio |
Generally lower expense ratio compared to equity funds. |
Higher expense ratio due to active management and research costs. |
| Suitability for SIP |
Not common; used more for lump sum short-term investments. |
Commonly used in SIPs for disciplined long-term investing. |
| Risk Factors |
Interest rate risk, credit risk (low but present). |
Market risk, company-specific risk, sector risk. |
| Role in Portfolio |
Acts as a liquid cash equivalent for emergency funds. |
Core growth driver in an investment portfolio. |
| NAV Fluctuation |
Minimal NAV fluctuations. |
Significant NAV fluctuations based on stock market performance. |
| Capital Protection |
High capital protection. |
No capital protection; principal can fluctuate. |
| Exit Load |
Usually no exit load or very low if redeemed within a few days. |
Exit loads may apply if redeemed before a specified period. |
| Investor Profile |
Conservative investors, risk-averse, needing liquidity. |
Aggressive or growth-oriented investors. |
| Summary |
Liquid funds provide safety, liquidity, and modest returns for short-term needs. |
Equity funds aim for higher returns with higher risk, suitable for long-term growth. |
Liquid Fund vs Equity Fund