Best Liquid Funds to Consider: Union Liquid Fund vs. Parag Parikh Liquid Fund

The suitability of liquid funds in the current market scenario is underscored by their ability to meet specific financial needs. Investors can use liquid funds as a contingency reserve, offering quick access to money when needed. Liquid funds serve as a better alternative to savings accounts for parking idle cash, given their superior returns and easy liquidity.

[Read: 3 Best Liquid Funds for 2025 - Top Liquid Mutual Funds for 2025]

Liquid funds invest in high-credit-rated instruments with a maturity of up to 91 days, ensuring minimal credit and interest rate risk. As markets experience heightened volatility due to geopolitical and economic challenges, liquid funds offer a safe harbour, enabling investors to weather short-term fluctuations while maintaining financial flexibility.

In this article, the analysis compares Union Liquid Fund and Parag Parikh Liquid Fund across key parameters to help you decide which liquid mutual fund is suitable for your portfolio.

# - Union Liquid Fund

Union Liquid Fund is an open-ended debt scheme that belongs to Union Mutual Fund. It is a well-established liquid fund launched in June 2011 and currently has an AUM of Rs 4,336.59 crores (as of Nov 30, 2024).

The scheme aims to provide reasonable returns commensurate with lower risk and high level of liquidity through a portfolio of money market and debt securities. The fund invests primarily in short-term money market instruments and debt securities with a residual maturity of up to 91 days.

# - Parag Parikh Liquid Fund

Parag Parikh Liquid Fund is an open-ended debt scheme and belongs to Parag Parikh Mutual Fund. It is a well-established liquid scheme launched in May 2018 and currently has an AUM of Rs 2,360.67 crores (as of Nov 30, 2024).

The fund aims to provide optimal returns with lower risk and higher liquidity through judicious investments in money market and debt instruments. It avoids exposure to volatile or lower-rated instruments, aligning with the overarching philosophy of the fund house to protect investor capital.

Investment Style and Philosophy:

Union Liquid Fund follows a conservative approach to investing, focusing on capital protection, liquidity, and stable returns. The fund primarily invests in high-quality money market instruments and short-term debt securities, ensuring that the portfolio carries minimal credit and interest rate risks. Aiming to cater to risk-averse investors, the fund prioritizes capital preservation over aggressive yield chasing.

Union Liquid Fund emphasizes high credit ratings when selecting instruments, aligning with its commitment to minimizing default risk while maintaining liquidity. The fund's philosophy is also rooted in active portfolio management, wherein the fund manager continuously monitors market conditions to capitalize on opportunities without compromising safety.

Parag Parikh Liquid Fund invests in a diversified portfolio of short-term, high-quality debt instruments such as Treasury Bills (T-Bills), Certificates of Deposit (CDs), and Commercial Papers (CPs) with a residual maturity of up to 91 days. By adhering to stringent credit quality standards, the fund minimizes both credit and liquidity risks.

Unlike some liquid funds that may aim for slightly higher returns by taking on additional risks, Parag Parikh Liquid Fund stays true to its commitment to safeguarding investor capital.

• Performance Comparison: Rolling Returns

  Scheme Name	Absolute (%)				CAGR %
  	1 Month	3 Months	6 Months	1 Year	2 Years	3 Years
  Union Liquid Fund (G)-Direct Plan	0.60	1.82	3.66	7.38	6.82	5.80
  Parag Parikh Liquid Fund(G)-Direct Plan	0.57	1.72	3.46	6.96	6.39	5.46
  Liquid Funds - Category Average	0.54	1.67	3.35	6.67	6.72	5.73
  Benchmark - CRISIL Liquid Debt Index	0.59	1.79	3.62	7.32	6.81	5.86

  Data as of December 20, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  Over the short term, the Union Liquid Fund has consistently outperformed both the Parag Parikh Liquid Fund and the category average. For instance, in the 1-month period, Union Liquid Fund delivered 0.60% compared to 0.57% from Parag Parikh Liquid Fund and the 0.54% category average.

  Similarly, over 3 and 6 months, Union Liquid Fund showed better results with 1.82% and 3.66% respectively, outperforming Parag Parikh Liquid Fund's 1.72% and 3.46%. The benchmark, CRISIL Liquid Debt Index, however, reflecting marginally lower returns than Union Liquid Fund.

  In the 1-year period, Union Liquid Fund again demonstrated superior performance, delivering 7.38%, significantly higher than the 6.96% of Parag Parikh Liquid Fund and the 6.67% category average. This indicates that Union Liquid Fund has been effective in navigating market conditions and generate substantial returns for investors.

  For longer investment horizons, Union Liquid Fund continues to hold an edge with 6.82% (2 years) and 5.80% (3 years) CAGR, slightly outperforming the benchmark and category average. On the other hand, Parag Parikh Liquid Fund offered 6.39% (2 years) and 5.46% (3 years) CAGR, which, while slightly lower than its peer, still delivered respectable results.

  Parag Parikh Liquid Fund, although slightly lagging behind, remains a strong contender, especially for investors who prioritize transparency and ethical investing. Both funds exceed the category average in most time frames, making them reliable choices within the liquid fund category.

• Portfolio Composition: Asset Allocation of Schemes

  Union Liquid Fund and Parag Parikh Liquid Fund exhibit distinctive asset allocation strategies aimed at providing stability, liquidity, and competitive returns, but their approaches reflect nuanced differences based on the fund house philosophies and risk management frameworks.

  Union Liquid Fund	Allocation %	Parag Parikh Liquid Fund	Allocation %
  Certificate of Deposit	46.39	Certificate of Deposit	53.49
  Commercial Paper	35.94	Treasury Bills	42.01
  Treasury Bills	20.69	Cash & Cash Equivalents and Net Assets	4.26
  Alternative Investment Fund	0.16	Alternative Investment Fund	0.24
  Cash & Cash Equivalents and Net Assets	-3.18

  Data as of November 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  Union Liquid Fund emphasizes a balanced allocation across high-quality money market instruments. With 46.39% of its portfolio invested in Certificates of Deposit (CDs) and 35.94% in Commercial Papers (CPs), the fund prioritizes instruments that offer a favourable risk-reward balance while ensuring liquidity. A smaller allocation of 20.69% to Treasury Bills (T-Bills) further enhances safety and provides a cushion against interest rate volatility.

  Parag Parikh Liquid Fund adopts a more safety-focused approach by allocating 53.49% of its assets to Certificates of Deposit, reflecting its preference for instruments with high credit quality and minimal default risk. A significant 42.01% allocation to Treasury Bills demonstrates the fund's inclination towards sovereign-backed instruments, offering unparalleled safety.

  The fund's reliance on Cash & Cash Equivalents and Net Assets (4.26%) highlights its readiness to meet redemption demands promptly, further enhancing its liquidity profile. The inclusion of Alternative Investment Funds (0.24%) is slightly higher than Union Liquid Fund but remains negligible, aligning with its conservative strategy.

  These strategic differences reflect the distinct philosophies of the fund houses and cater to varying investor preferences based on risk tolerance and return expectations.

• Maturity Profile of Schemes

  Debt Ratio	Union Liquid Fund	Parag Parikh Liquid Fund
  Average Maturity	39.00 Days	47.39 Days
  Macaulay Duration	39.00 Days	46.42 Days
  YTM %	7.02	6.84

  Data as of November 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  Union Liquid Fund has an average maturity of 39 days and a Macaulay duration of 39 days, which indicates a very short-term investment horizon. This shorter maturity profile makes it highly suitable for investors looking for minimal interest rate risk and quick liquidity.

  In comparison, the Parag Parikh Liquid Fund exhibits a slightly longer average maturity of 47.39 days and a Macaulay duration of 46.42 days. While the extended duration increases the fund's exposure to interest rate changes, it still remains within the low-risk threshold typical of liquid funds.

  [Read: Indian Equity Market Has Corrected! How to Approach Mutual Funds Now]

  In terms of Yield-to-Maturity (YTM), the Union Liquid Fund stands out with a higher YTM of 7.02%. This suggests that the fund's current portfolio is expected to generate slightly better returns compared to the Parag Parikh Liquid Fund, which has a YTM of 6.84%. The higher YTM of the Union Liquid Fund could be attributed to its selection of slightly higher-yielding money market instruments or other short-term securities.

• Top Holdings of the Liquid Schemes:

  Union Liquid Fund		Parag Parikh Liquid Fund
  Company Name	% Assets	Company Name	% Assets
  Treasury Bills	20.69	Treasury Bills	42.01
  Canara Bank	5.16	Kotak Mahindra Bank Ltd.	5.26
  Punjab National Bank	5.16	ICICI Bank Ltd.	5.26
  Axis Bank Ltd.	5.14	HDFC Bank Ltd.	5.25
  Reliance Jio Infocomm Ltd.	4.60	Punjab National Bank	5.25
  State Bank Of India	3.45	National Bank For Agriculture & Rural Development	5.25
  HDFC Bank Ltd.	3.45	Union Bank Of India	5.25
  National Bank For Agriculture & Rural Development	3.43	Canara Bank	5.24
  Bank Of Baroda	3.42	State Bank Of India	5.23
  Small Industries Development Bank of India	2.88	Bank Of Baroda	5.23

  Data as of November 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  Union Liquid Fund has a diversified portfolio with significant allocation to Treasury Bills, accounting for 20.69% of its total assets. Treasury Bills, being government-backed securities, enhance the fund's safety and liquidity profile.

  Investments in Axis Bank Ltd. (5.14%) and Reliance Jio Infocomm Ltd. (4.60%) add a touch of diversity, including exposure to private sector enterprises. The presence of State Bank of India (3.45%) and HDFC Bank Ltd. (3.45%) underlines a focus on established institutions, while the inclusion of the Small Industries Development Bank of India (SIDBI) (2.88%) emphasizes support for financial development.

  Parag Parikh Liquid Fund has a more concentrated allocation towards Treasury Bills, which form 42.01% of its portfolio, showcasing a strong preference for sovereign-backed instruments. The fund further diversifies across high-rated banking institutions, with Kotak Mahindra Bank Ltd., ICICI Bank Ltd., and HDFC Bank Ltd. each constituting approximately 5.26% of the total assets. These allocations reflect a bias toward private sector banks known for their financial robustness.

  Both funds prioritize liquidity and capital preservation through substantial allocations to Treasury Bills and high-rated banking instruments. However, Parag Parikh Liquid Fund places greater emphasis on Treasury Bills, nearly double the allocation compared to Union Liquid Fund. This choice may appeal to investors seeking enhanced stability with minimal risk.

• Expense Ratio of the Schemes

  When comparing mid-cap funds, the Expense Ratio, which represents the annual fee charged, plays a crucial role in determining your returns. Here's a quick breakdown of Union Liquid Fund vs Parag Parikh Liquid Fund:

  Scheme Name	Direct Plan Expense Ratio	Regular Plan Expense Ratio
  Union Liquid Fund	0.07%	0.17%
  Parag Parikh Liquid Fund	0.16%	0.26%

  Data as of November 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  Parag Parikh Liquid Fund offers a higher expense ratio in the regular plan, indicating lower net returns for investors compared to Union Liquid Fund which offers a cost advantage to investors. Both Union Liquid Fund and Parag Parikh Liquid Fund offer direct plans with competitive expense ratios. While the Parag Parikh Liquid Fund has a slightly higher expense ratio, the difference is minimal.

  Remember, a lower expense ratio translates to potentially higher returns over time.

• Suitability of Investors to the Schemes:

  Union Liquid Fund is suitable for investors prioritizing stability and a proven track record. Its portfolio predominantly consists of high-quality money market instruments and short-term debt securities, ensuring consistent returns. This fund is an excellent choice for institutional investors or individuals who need a reliable and steady parking space for surplus funds.

  It is also apt for those who value quick access to their investments, as liquid funds typically offer same-day or next-business-day redemptions.

  Parag Parikh Liquid Fund stands out for its transparency and ethical investment practices. Managed by a fund house renowned for its value-driven philosophy, it suits investors who prioritize a disciplined and risk-averse approach. It is particularly appealing to retail investors and those who prefer funds with a conservative stance on credit and interest rate risks.

  Furthermore, the fund is ideal for individuals looking for a simple and efficient solution to meet short-term financial requirements, such as parking funds between investment decisions or managing liquidity needs.

To Summarise...

As investors navigate uncertain economic conditions, liquid funds serve as a flexible tool to manage short-term cash flows, build contingency reserves, and optimize returns on surplus funds. The liquid fund segment is particularly attractive in volatile markets, providing stability while minimizing risks associated with interest rate fluctuations.

Whether you choose the Union Liquid Fund for its stability or the Parag Parikh Liquid Fund for its investor-centric philosophy, liquid funds remain a strategic choice for achieving financial flexibility and security. Their role as a cornerstone of short-term financial planning ensures they remain a go-to option for prudent investors in the evolving market landscape.

Investors must assess their liquidity needs, risk tolerance, and investment goals before choosing the right liquid fund. Whether it's preserving capital in uncertain times, managing emergency funds, or parking surplus cash for short durations, these funds offer unparalleled flexibility.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.