An investor needs to accumulate funds to pay for an annual house property maintenance tax due in exactly 45 days. Which mutual fund scheme category is most suitable to satisfy this financial requirement?

[ A ]Small Cap Equity Fund

[ B ]Sectoral Infrastructure Fund

[ C ]Liquid Fund or Overnight Fund[ CORRECT ]

[ D ]Credit Risk Debt Fund

Takeaway

Option C is correct: Liquid Fund or Overnight Fund

Derivation

When an investor has an ultra-short investment horizon (under 91 days), the primary objectives are capital safety and high liquidity. Liquid funds (investing in debt and money market instruments with residual maturity up to 91 days) and Overnight funds (1-day maturity) feature negligible price volatility, making them ideal for parking funds for 45 days. Equity funds and credit risk funds carry high market volatility and potential capital loss, making them unsuitable for short-term goals. This tests time horizon matching. A common error is chasing high equity returns for immediate liquidity needs.

Why the others fail

A — Small Cap Equity Fund

Small Cap funds are volatile growth vehicles requiring 5-7 years horizon; investing for 45 days risks severe capital loss.

B — Sectoral Infrastructure Fund

Sectoral funds take concentrated equity risk with high cyclicality, completely unsuitable for 45-day liquidity requirements.

D — Credit Risk Debt Fund

Credit risk funds hold lower-rated debt exposed to credit defaults and lack the ultra-safe liquidity required for 45-day horizons.