Liquid Funds: A Worthy Choice to Park Money for the Short-Term Amid Volatile Equity Market

Furthermore, the Trump 2.0 administration was to impose an individualised reciprocal higher tariff on countries with which the US has the largest trade deficits, while all other nations remain subject to the original 10% tariff baseline. This was to come into effect on April 9, 2025.

[Read: Trump Tariff Tantrum and Its impact on Equity, Debt, and Gold Outlook]

Following Trump's announcement, tensions between the US and China escalated as the two countries hit each other with additional and retaliatory tariffs.

China first imposed an additional 34% duty on all US imports, prompting the latter to nearly double the duties on Chinese imports to 104%. This led China to increase the 34% retaliatory tariff to 84%.

The European Union (EU) also struck back with a 25% tariff on some US imports, albeit showing an inclination towards negotiation.

The heightened fears of an all-out global trade war, the high chances of the US slipping into a recession and, in turn, impacting the global growth rate left the major stock markets worldwide bleeding.

On April 7, 2025, the BSE Sensex and Nifty 50 plunged over -5%, resulting in one of their worst falls since the COVID-19 pandemic market crash of 2020 and a staggering Rs 16 lakh crore wipeout in market value. All three major US indexes, S&P 500, Dow Jones, and Nasdaq hit their lowest levels in over a year in early trade.

Other Asian and European indices, viz., Hong Kong's Hang Seng, UK's FTSE 100, Germany's DAX, and France's CAC 40, fell in the range of -4% to -13%.

However, on April 9, 2025, after claiming that reciprocal tariffs were here to stay, Trump announced a 90-day pause on reciprocal tariffs for most nations except China. The 10% universal tariff on all imports coming into the US will remain in effect.

China, however, will face an increased tariff rate of 125%, up from the previously announced 104%.

Wall Street, after days of turmoil, finally breathed a sigh of relief after this announcement. The S&P 500, Dow, and Nasdaq surged by 9.5% (best day since October 2008), 7.87% (best day in five years), and 12.2% (best day since January 2001), respectively.

The Indian benchmark indices, Nifty and Sensex, after trading in steep losses on April 9, 2025, could maybe see a glimmer of hope for a rebound following the tariff pause.

[Read: Sensex, Nifty Tumble: How Donald Trump's Reciprocal Tariffs Are Impacting the Equity Markets]

However, given the escalating tensions between the US and China, as well as Trump's mercurial temperament, it would be imprudent to assume that markets have bottomed out.

In addition, the Indian equity market is facing headwinds from several global and domestic quarters - the ongoing Russia-Ukraine war, Israel's military operations in Gaza, the increasing risk of geoeconomic fragmentation, the upside risk to the inflation trajectory, and the possibility of an economic slowdown.

In such a scenario, investors should brace for intense volatility in the short to medium term.

Against this backdrop, it makes sense for you, the investor, to tactically hold some money in lower-risk avenues.

[Read: Why You Need to Be Mindful of Asset Allocation in 2025 and Beyond]

Warren Buffett's Winning Move in a Market Crash

As you may know, even the legendary investor Warren Buffett strategically allocates a portion of his portfolio to short-term US treasuries.

While many billionaires are watching their fortunes evaporate in the ongoing 2025 market crash, Buffett is doing what he does best - staying calm, sitting on cash, and winning quietly.

In fact, Buffett made $13 billion this year by simply acting early - not during the crash, but in 2024 when markets were euphoric. While many were chasing AI stocks and risky bets, he quietly sold $134 billion worth of equities and put the money into short-term U.S. Treasury bills, earning a safe and predictable steady 5% return annually.

In 2024, when 53% of 189 businesses in Buffett's empire reported a decline in earnings, Berkshire Hathaway's operating earnings increased by 71%. As a result, Berkshire Hathaway is now sitting on a jaw-dropping $330 billion in cash and short-term Treasuries - more than the combined value of Starbucks, Ford, X (formerly Twitter), New York Times, Target, and Zoom!

This was "aided by a predictable large gain in investment income as Treasury Bill yields improved and we substantially increased our holdings of these highly-liquid short-term securities," wrote Buffett in a 2024 letter to the shareholders of Berkshire Hathaway.

According to reports, Buffett took a cautious approach in 2024, scaling back on stock purchases and trimming Berkshire's portfolio. This perhaps indicates Buffett's ability to foresee crises and challenges that lie ahead.

When markets turn volatile, the real power lies in liquidity-and no one proves that better than Warren Buffett. Instead of chasing the market highs, he sold equities and built a massive cash pile.

Why? Because when uncertainty strikes-like now, with geopolitical tensions, tariff fears, and economic slowdown risks-having cash on hand gives you options.

The key lesson for investors today is simple: don't underestimate the value of staying liquid. You don't always need to be fully invested, especially when everything feels overpriced.

You, the investor, can also take a leaf out of Buffett's book and hold a portion of your investment portfolio in cash and cash-equivalent avenues. However, when holding cash tactically, Buffett advises safety over yields.

If you're looking to safeguard your money while keeping it readily accessible during times of need, a pure Liquid Mutual Fund, or Liquid Fund, is a worthwhile option.

What Are Liquid Funds?

Liquid Funds are a type of debt mutual fund that invests in highly secure short-term instruments like treasury bills, certificates of deposit (CDs), and commercial papers. These instruments generally have maturities of up to 91 days, which helps reduce interest rate risk.

The low inherent risk associated with the type of securities Liquid Funds hold makes them less susceptible to market fluctuations, ideal for investors seeking safety and liquidity during volatile times.

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

The investments can typically be redeemed within 24 hours, ensuring you have access to your money when you need it most. This liquidity makes these funds ideal for keeping money aside for a short-term financial goal (with a time horizon of 3-6 months or up to a year).

Liquid Funds can not only help you preserve capital but also make the most of value-buying opportunities in the equity market, whenever available.

However, you need to choose a suitable Liquid Mutual Fund scheme wisely and prioritise safety and easy access over chasing high returns, as the primary objective is to provide optimal returns with a low level of risk and high liquidity.

If a Liquid Fund is delivering high or above-average returns, it may be because it has invested in debt papers of private issuers, potentially compromising on quality to generate slightly better returns and thus increasing the credit risk.

Make sure that the fund of your choosing prioritises safety by actively avoiding exposure to private issuers and doesn't engage in aggressive yield-hunting.

Ideally, when your preference is safety over returns, you should consider Liquid Funds that primarily focus on investing in Government and Quasi-government securities.

The table below outlines the 1-year returns of some of the top-performing Liquid Mutual Funds:

By prudently choosing a suitable Liquid Fund, you can potentially earn returns that outpace inflation (but likely lower than equity or debt funds with longer maturities).

To Conclude...

Liquid Funds can help shield your portfolio from the sharp price swings experienced by equity-based investments during periods of market turbulence.

However, you need to look at several factors before selecting the best Liquid Fund. Consider the reputation and track record of the fund house managing the Liquid Fund, and look for funds that primarily invest in instruments with high credit ratings (AAA or equivalent) to minimise the risk of default.

If quick access to money is your priority, opt for funds with a low or no exit load. The tax treatment of Liquid Funds may also vary depending on the investment horizon, so make sure to choose the fund that aligns with your tax strategy.

Most importantly, make sure that the scheme's portfolio is well diversified across a range of securities and not heavily concentrated in a single company or group of companies.

Be thoughtful in your approach.

Happy investing!

We are on Telegram! Join thousands of like-minded investors and our editors right now.

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.