{"id":42055,"date":"2026-08-07T13:00:46","date_gmt":"2026-08-07T07:30:46","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=42055"},"modified":"2026-08-06T22:51:34","modified_gmt":"2026-08-06T17:21:34","slug":"can-liquid-funds-give-negative-returns","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/can-liquid-funds-give-negative-returns\/","title":{"rendered":"can liquid funds give negative returns ?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_40 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" area-label=\"ez-toc-toggle-icon-1\"><label for=\"item-6a75c411e01de\" aria-label=\"Table of Content\"><span style=\"display: flex;align-items: center;width: 35px;height: 30px;justify-content: center;direction:ltr;\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/label><input  type=\"checkbox\" id=\"item-6a75c411e01de\"><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/kuvera.in\/blog\/can-liquid-funds-give-negative-returns\/#how_liquid_funds_can_lose_value\" title=\"how liquid funds can lose value\">how liquid funds can lose value<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/kuvera.in\/blog\/can-liquid-funds-give-negative-returns\/#the_risk_of_negative_returns_is_low\" title=\"the risk of negative returns is low\">the risk of negative returns is low<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/kuvera.in\/blog\/can-liquid-funds-give-negative-returns\/#when_liquid_funds_give_negative_returns\" title=\"when liquid funds give negative returns\">when liquid funds give negative returns<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/kuvera.in\/blog\/can-liquid-funds-give-negative-returns\/#what_to_watch_for\" title=\"what to watch for\">what to watch for<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/kuvera.in\/blog\/can-liquid-funds-give-negative-returns\/#frequently_asked_questions\" title=\"frequently asked questions\">frequently asked questions<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p class=\"ds-markdown-paragraph\"><span class=\"\"><a href=\"https:\/\/kuvera.in\/mutual-funds\/all\/equity\/value-fund\">liquid funds<\/a> are considered one of the safest <a href=\"https:\/\/kuvera.in\/mutual-funds\/all\">mutual fund<\/a> categories. they invest in short-term instruments with maturities up to 91 days. treasury bills. commercial papers. certificates of deposit. the goal is capital preservation with quick access.<\/span><\/p>\n<p class=\"ds-markdown-paragraph\"><span class=\"\">but safe does not mean risk-free. liquid funds can give negative returns. the conditions are rare. but they exist.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"how_liquid_funds_can_lose_value\"><\/span><strong><span class=\"\">how <a href=\"https:\/\/kuvera.in\/mutual-funds\/all\/equity\/value-fund\">liquid funds<\/a> can lose value<\/span><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p class=\"ds-markdown-paragraph\"><strong><span class=\"\">credit events.<\/span><\/strong><span class=\"\">\u00a0the primary risk in a <a href=\"https:\/\/kuvera.in\/mutual-funds\/all\/equity\/value-fund\">liquid fund<\/a> is credit risk. if a company defaults on its commercial paper, the fund&#8217;s NAV can drop. this happened during the IL&amp;FS crisis in 2018. liquid funds with exposure to IL&amp;FS group companies had to mark down their NAV. investors saw negative returns.<\/span><\/p>\n<p class=\"ds-markdown-paragraph\"><strong><span class=\"\">market dislocation.<\/span><\/strong><span class=\"\">\u00a0a sector-specific issue can cause broader instability. after the IL&amp;FS episode, institutional investors pulled money from <a href=\"https:\/\/kuvera.in\/mutual-funds\/all\/equity\/value-fund\">liquid funds<\/a>. the outflows created pressure. NAVs were affected. the impact was limited to certain funds with exposure to the affected companies.<\/span><\/p>\n<p class=\"ds-markdown-paragraph\"><strong><span class=\"\">technical glitches.<\/span><\/strong><span class=\"\">\u00a0the NSE closing price glitch in august 2026 affected <a href=\"https:\/\/kuvera.in\/mutual-funds\/all\">mutual fund<\/a> NAVs. funds using NSE closing prices for valuation saw NAV fluctuations. index funds and ETFs were impacted. the effect was short-term but real.<\/span><\/p>\n<p class=\"ds-markdown-paragraph\"><strong><span class=\"\">interest rate risk.<\/span><\/strong><span class=\"\">\u00a0bond prices move inversely to interest rates. <a href=\"https:\/\/kuvera.in\/mutual-funds\/all\/equity\/value-fund\">liquid funds<\/a> hold short-term instruments. the duration is low. the impact is limited. a sharp rise in interest rates can still cause a small negative return.<\/span><\/p>\n<p class=\"ds-markdown-paragraph\"><strong><span class=\"\">tracking error and volatility.<\/span><\/strong><span class=\"\">\u00a0a comparison of kotak liquid fund and uti liquid fund shows the extremes. kotak liquid fund had 3-year returns of +4.77% and volatility of 0.3%. uti liquid fund had 3-year returns of -51.39% and volatility of 89.8%. the maximum drawdown for kotak liquid fund was -0.0%. for uti <a href=\"https:\/\/kuvera.in\/mutual-funds\/all\/equity\/value-fund\">liquid fund<\/a>, it was -90.0%. this is an outlier. but it shows that liquid funds can lose significant value.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"the_risk_of_negative_returns_is_low\"><\/span><strong><span class=\"\">the risk of negative returns is low<\/span><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p class=\"ds-markdown-paragraph\"><span class=\"\"><a href=\"https:\/\/kuvera.in\/mutual-funds\/all\/equity\/value-fund\">liquid funds<\/a> are designed for stability. they invest in high-quality short-term debt. the average maturity is around 72 days. the modified duration is similarly low. this minimizes the impact of interest rate changes.<\/span><\/p>\n<p class=\"ds-markdown-paragraph\"><span class=\"\">the risk class for liquid funds is typically &#8220;relatively low interest rate risk and moderate credit risk&#8221;. this means the fund can lose value. but the probability is low.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"when_liquid_funds_give_negative_returns\"><\/span><strong><span class=\"\">when <a href=\"https:\/\/kuvera.in\/mutual-funds\/all\/equity\/value-fund\">liquid funds<\/a> give negative returns<\/span><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p class=\"ds-markdown-paragraph\"><span class=\"\">a liquid fund gives negative returns when its NAV drops below its value at the start of the period. this is unusual. over a 6-month period, the worst performer in the category can show losses. one-year returns can be negative in extreme cases. for some funds, 5-year returns have also been negative.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"what_to_watch_for\"><\/span><strong><span class=\"\">what to watch for<\/span><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p class=\"ds-markdown-paragraph\"><strong><span class=\"\">credit quality.<\/span><\/strong><span class=\"\">\u00a0high-quality paper has lower credit risk. funds investing in AAA and A1+ rated instruments are safer.<\/span><\/p>\n<p class=\"ds-markdown-paragraph\"><strong><span class=\"\">portfolio composition.<\/span><\/strong><span class=\"\">\u00a0checking if the fund holds commercial paper of companies in stressed sectors. higher exposure to these companies increases risk.<\/span><\/p>\n<p class=\"ds-markdown-paragraph\"><strong><span class=\"\">diversification.<\/span><\/strong><span class=\"\">\u00a0funds with a wide spread across issuers are less vulnerable to a single default.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"frequently_asked_questions\"><\/span><strong><span class=\"\">frequently asked questions<\/span><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p class=\"ds-markdown-paragraph\"><strong><span class=\"\">1. can <a href=\"https:\/\/kuvera.in\/mutual-funds\/all\/equity\/value-fund\">liquid funds<\/a> give negative returns<\/span><\/strong><\/p>\n<p class=\"ds-markdown-paragraph\"><span class=\"\">yes. liquid funds can give negative returns due to credit events, market dislocations, or technical glitches. the risk is low but not zero.<\/span><\/p>\n<p class=\"ds-markdown-paragraph\"><strong><span class=\"\">2. have <a href=\"https:\/\/kuvera.in\/mutual-funds\/all\/equity\/value-fund\">liquid funds<\/a> given negative returns in the past<\/span><\/strong><\/p>\n<p class=\"ds-markdown-paragraph\"><span class=\"\">yes. during the IL&amp;FS crisis, some liquid funds with exposure to the group saw NAV declines.<\/span><\/p>\n<p class=\"ds-markdown-paragraph\"><strong><span class=\"\">3. are <a href=\"https:\/\/kuvera.in\/mutual-funds\/all\/equity\/value-fund\">liquid funds<\/a> risk-free<\/span><\/strong><\/p>\n<p class=\"ds-markdown-paragraph\"><span class=\"\">no. liquid funds are low risk. but they are not risk-free. credit risk and interest rate risk exist.<\/span><\/p>\n<p class=\"ds-markdown-paragraph\"><strong><span class=\"\">4. what is the worst-case return for a liquid fund<\/span><\/strong><\/p>\n<p class=\"ds-markdown-paragraph\"><span class=\"\">historical data shows that some liquid funds have had negative returns over 1-year and 3-year periods. returns as low as -51.39% over 3 years have been recorded for some funds.<\/span><\/p>\n<p class=\"ds-markdown-paragraph\"><strong><span class=\"\">5. are <a href=\"https:\/\/kuvera.in\/mutual-funds\/all\/equity\/value-fund\">liquid funds<\/a> safer than fixed deposits<\/span><\/strong><\/p>\n<p class=\"ds-markdown-paragraph\"><span class=\"\">liquid funds carry market risk. fixed deposits guarantee returns up to \u20b95 lakh. for absolute certainty, fixed deposits are safer. for flexibility, liquid funds are better.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>liquid funds are considered one of the safest mutual fund categories. they invest in short-term instruments with maturities up to 91 days. treasury bills. commercial papers. certificates of deposit. the goal is capital preservation with quick access. but safe does not mean risk-free. liquid funds can give negative returns. the conditions are rare. but they [&#8230;]<\/p>\n<p><a class=\"btn btn-secondary understrap-read-more-link\" href=\"https:\/\/kuvera.in\/blog\/can-liquid-funds-give-negative-returns\/\">Read More&#8230;<\/a><\/p>\n","protected":false},"author":41,"featured_media":41743,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false},"categories":[992,4382],"tags":[],"yoast_head":"<!-- This site is optimized with the 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