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Premium: Can Liquid Funds Lose Money?

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Liquid Mutual Funds are considered very safe. They can only invest in debt and even there, only paper that matures within 91 days. They have many things they can buy: • Lend money in the call market (overnight borrowing) • Use CBLO to finance (between overnight and a few days) • Buy T-Bills or government securities that are maturing in the next 91 days (government backed, so ultra low credit risk) • Buy corporate paper (commercial paper) or bank paper (certificates of deposit) maturing within 91 days (some credit risk, but shorter term to maturity) In such a case, unless there is a default, why would liquid funds lose money? Now think about this:

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