Liquid funds are safe as they are strongly regulated by the SEBI and managed by expert fund managers.

As for the risk factor, it is said to be almost zero (but NOT zero) about capital safety if you stay invested for a good amount of time. Hence, these are some of the least risky mutual funds in the market.

• Investors with a short investment horizon - Liquid funds invest in securities with shorter maturity terms, so they can be good for investors with an investment horizon of up to 3 months.

• Investors who invest in bank deposits: Investors used to bank deposits may consider liquid funds instead for a chance at higher returns and higher liquidity.

• Investors who want to keep contingency funds: With the assurance that your corpus is safe and ready-to-withdraw when necessary, liquid funds can be a good option to park your contingency funds.

• Investors who need to park funds temporarily: Because of the short-term nature of liquid funds, they can be an appropriate option for parking money temporarily while earning some returns out of it as well.

• Medium to route investments in equity funds: Short term investments in liquid funds can easily be routed periodically to equity investments through Systematic Fund Transfer (STP).

Risks - It is important to note that although liquid funds are low-risk, they are not risk-free. They do carry credit risk.
Returns - Liquid funds have been known to provide approximately 7% p.a. returns on an average. Evaluating fund performance will also give you a clearer idea of what to expect.
Expense Ratio - The annual fee charged by your fund house for their fund management services is called the expense ratio. Lower the ratio, higher the returns.
Investment Plan - Liquid funds have an ideal investment horizon of up to 3 months. So, think accordingly and invest as per your financial goals.