Liquid funds, a type of mutual funds which invest in different money market instruments. The withdrawals from these funds are processed within 24 hours and that's why these are regarded as liquid assets. The fund manager gets flexibility to meet immediate redemption requests.
You will get an answer to following questions:
Liquid funds are class of mutual funds which invest in Money market instruments like treasury bills, commercial paper, certificate of deposits, and term deposits most of these assets have 3 months to 13 months of maturity period which in turn gives fund manager flexibility to meet immediate redemption requests.
Liquid name comes from the fact that withdrawals from these funds are processed within 24 hours hence its quite a liquid asset.
Top liquid funds in India as per Crisil are as follow
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Liquid funds are better than savings account for following reasons
*There is no exit load
For more details read my post on Liquid Funds versus Savings account
With recent changes there are not much difference in how tax treatment of FDs and Liquid funds
Key factors to look at while chosing a liquid fund are as follow
Liquid funds investments are best to park money which you require almost immediately, so my first suggestion will be that move all your cash holdings and savings account holding to liquid funds, you can also move part of FDs also to liquid funds, chose dividend re-investment option if you come under tax 30 % tax bracket.