For one liquid funds offer high liquidity in which an investor can withdraw money on a T+1 basis. This means the investor can get his money one working day after putting in his redemption request. Recently Sebi also allowed instant redemptions in these funds, allowing investors to get up to Rs 50,000 per day instantly, making these funds operate almost like a bank account with ATM facility.

Investors in liquid funds can also partially withdrawal their investments, in addition to full redemption of their money.

Another advantage of liquid funds is that the dividend that an investor gets in a liquid scheme is tax free in his hands. In comparison in savings bank the investor, depending up on the investor's income tax slab, may have to pay up to 30% tax for returns in excess of Rs 10,000 per year. Similarly in bank FDs too, there could be tax burden and that too without any deduction available in returns from savings bank.

Like a bank account holder can deposit and withdraw any amount of money in his bank account anytime, an investor in a liquid fund can also do the same, with some minor riders.There is some minimum limit for investing in a liquid fund while there is no upper limit. Also any type of investor, from small investors, to high networth individuals, HUFs and companies, can invest in liquid funds.