Are mutual funds liquid assets? What you need to know

When you need to access cash from your investments, timing matters. Whether you’re managing corporate reserves or covering unexpected expenses, knowing how quickly your assets convert to cash determines your financial flexibility.

Most mutual funds are liquid assets. You can typically redeem shares and receive cash within 1–2 business days. They’re more liquid than real estate or private equity but less immediate than a checking or savings account.

Understanding mutual fund liquidity helps you decide where to park short-term investments and how to access them when needed.

Are mutual funds considered liquid?

Yes, most mutual funds are liquid assets. Investors can redeem shares on any business day at the fund’s net asset value (NAV), calculated after markets close. The fund then processes your redemption request and typically deposits cash in your bank or brokerage account.

This structure makes mutual funds more liquid than assets such as real estate or private equity, which may take months to sell and often require selling at a loss. For most investors, that combination of daily pricing and predictable settlement provides a dependable level of liquidity without the volatility of the stock market.

What is liquidity?

Liquidity measures how quickly you can convert an investment to cash without losing market value.

A checking account or money market fund offers maximum liquidity; you can access their full value almost instantly. Stocks are also highly liquid since they trade throughout the day and settle within 1–2 business days.

At the other end are non-liquid assets such as machinery or real estate, which can take weeks or months to sell and may lose value in the process. Mutual funds sit closer to the liquid end of this spectrum, giving investors dependable access to cash equivalents with minimal delay.

How mutual fund liquidity works day to day

To draw cash from your mutual fund, you'd place a redemption order during the day. The fund calculates its NAV after the markets close, and the cash typically reaches your bank or brokerage account within 1–2 business days.

Unlike stocks, which trade throughout the day, mutual funds price once daily after markets close at 4:00 PM ET. This daily pricing model ensures all investors who redeem on a given day receive the same NAV per share.

Orders submitted before the cutoff time, usually 4:00 PM ET, receive that day’s price. Orders placed later process at the next day’s NAV.

Cash buffers and liquid investments

Fund managers maintain cash reserves and invest in highly liquid securities to meet daily redemption requests. Instead of selling portfolio holdings whenever investors need cash, they hold a buffer of money market instruments and short-term government securities to support a steady cash flow.

This liquidity management approach protects both redeeming and remaining shareholders. Redeeming investors receive funds on time, while others avoid the cost and market impact of forced sales. Buffer size varies based on each fund’s investment strategy and investor behavior patterns.

Inflows, redemptions, and portfolio adjustments

New investor money flowing into the fund often balances redemption requests from departing investors, mirroring how inflows and outflows stabilize a company’s liquidity position report. On a typical day, some investors buy while others sell, creating a balance that reduces the fund’s need to adjust its portfolio.

However, this balance can break down during market volatility or sector rotations. When redemptions exceed inflows, fund managers must sell holdings to raise cash, sometimes at less favorable prices if markets are stressed.

Settlement timing and access to cash

Most mutual funds follow a T+1 settlement timeline, meaning you receive cash the next business day after placing your redemption order. The fund calculates NAV once daily after the market closes at 4:00 PM ET. Orders submitted before that cutoff receive the same-day price.

While T+1 is standard, funds can legally take up to 7 days to deliver redemption proceeds in extreme conditions. This rarely occurs but provides flexibility during severe market disruptions when normal settlement isn't possible.

Factors that affect a fund's liquidity

Not all mutual funds offer the same level of liquidity. How quickly you can access your money depends on the fund’s portfolio, investor base, and market conditions.

Understanding these factors helps you choose mutual fund investments that balance returns, stability, and liquidity, especially when using them for short-term investments or as part of an emergency fund.

Portfolio asset mix

The type of securities a fund holds directly determines its liquidity. Funds investing in high-quality, short-term, or government-backed assets can convert holdings to cash more easily than those with complex or thinly traded positions.

More liquid holdings include:

• Large-cap U.S. stocks that trade millions of shares daily and have consistent buyers
• U.S. Treasury bills and bonds, among the most liquid fixed-income securities globally
• Investment-grade corporate bonds from major issuers with deep secondary markets
• Money market instruments and other cash equivalents that mature quickly

Less liquid holdings include:

• Small-cap or emerging market stocks with limited daily trading volume
• High-yield or distressed corporate bonds that attract fewer buyers
• Municipal bonds from smaller issuers with less trading activity
• International or frontier market securities subject to capital controls or currency risk

Investor concentration and flows

Liquidity also depends on who invests in the fund and how concentrated those holdings are. A broad base of retail investors typically creates steady inflows and redemptions that offset each other.

More predictable and liquid funds:

• Have thousands of smaller investors with diversified behavior patterns
• Experience moderate, routine redemption activity
• Rarely face liquidity pressure from any single investor

Less predictable and potentially less liquid funds:

• Depend heavily on a few large, institutional investors
• Face the risk of one large redemption triggering forced sales
• Must manage higher liquidity risk despite holding otherwise liquid assets

Market stress conditions

Even highly liquid funds can experience delays or value losses when markets seize up. During market volatility, trading volumes shrink, bid-ask spreads widen, and buyers demand higher returns for assuming risk.

When markets are stressed:

• Assets that normally trade easily may require deep discounts to sell
• Redemption requests can outpace inflows, forcing fund managers to liquidate holdings
• NAVs can fall sharply as prices reflect panic-driven selling
• Examples include the 2008 financial crisis and March 2020’s pandemic-driven bond market freeze

Liquid assets vs. non-liquid assets

Knowing where mutual funds sit on the liquidity spectrum helps you decide how much of your portfolio to keep in easily accessible investments versus longer-term holdings.

Mutual funds sit between instant-access vehicles like money market funds and long-term commitments such as private equity or real estate. You sacrifice same-day access for professional management, diversification, and a predictable redemption timeline measured in days rather than months or years.

Non-liquid assets examples

Some investments tie up capital for extended periods or impose penalties for early withdrawal. These fixed assets can add diversification and higher potential returns, but they reduce flexibility when you need cash quickly:

• Real estate: Selling property takes months between listing, negotiating, inspections, and closing. Outcomes depend heavily on market conditions, and final sale prices can vary widely.
• Private equity and venture capital: These investments usually lock up capital for 5–10 years with little or no ability to exit early. Secondary markets exist, but often require accepting steep discounts to recover funds.
• Collectibles: Art, rare coins, and wine require specialized buyers and professional appraisals. The authentication and auction process can stretch over months, adding cost and uncertainty.
• Certificates of deposit (CDs): While technically redeemable, early withdrawal penalties can erode principal, making CDs effectively illiquid until maturity
• Retirement accounts: Withdrawals from 401(k)s and IRAs before age 59.5 incur income tax plus a 10% early withdrawal penalty. These accounts can hold mutual funds or other securities, but are designed for long-term use, not short-term liquidity.

Liquidity risks and SEC safeguards

The Securities and Exchange Commission (SEC) regulates how mutual funds manage liquidity to protect investors and maintain market stability. These rules ensure that funds can meet redemption requests, even during stressed conditions, while treating all shareholders fairly.

Rule 22e-4: Liquidity risk management programs

Adopted in 2016, Rule 22e-4 requires every open-end mutual fund to maintain a formal liquidity risk management program. Each fund must:

• Classify every portfolio holding by how easily it can be converted to cash
• Set a minimum threshold for highly liquid investments
• Limit exposure to illiquid assets that could delay redemptions
• Conduct ongoing stress testing to assess liquidity under adverse market conditions

Highly liquid investment minimum

Under Rule 22e-4, most open-end funds must hold enough assets that can be converted to cash within three business days without materially affecting market value. This minimum helps ensure that fund managers can meet redemption requests without resorting to forced sales.

Funds generally can't hold more than 15% of net assets in illiquid securities, defined as those that can't be sold within 7 days at approximately their carrying value.

Money market funds follow even stricter requirements. They must keep at least 10% of assets in daily liquid securities and 30% in weekly liquid assets. These limits allow them to function almost like savings accounts, providing stability and near-instant liquidity while remaining investment products.

Swing pricing and redemption fees

Some funds adjust NAVs on days with heavy trading activity to ensure transaction costs fall on the investors creating them. This process, known as swing pricing, prevents remaining shareholders from absorbing liquidity costs.

Others apply short-term redemption fees, typically 1–2% for shares held less than 30–90 days, to discourage frequent trading that can disrupt liquidity. The fees go back to the fund, not the management company, benefiting long-term investors.

When mutual funds can become illiquid

Although rare, certain events can temporarily limit your ability to redeem mutual fund shares. These situations usually occur during extreme market disruptions, regulatory interventions, or operational failures that make normal redemptions impossible.

Gate triggers and suspension scenarios

Redemption gates limit the amount of money investors can withdraw, while full suspensions halt all redemptions. Both measures require board approval and immediate SEC notification. They occur only when continuing normal operations would harm shareholders.

Common triggers include:

• Market closures that prevent accurate asset valuation
• Disruptions in the banking system that block cash transfers
• Extreme volatility that makes fair pricing impossible
• Regulatory actions during systemic crises
• Foreign market restrictions affecting international funds

The SEC can also suspend redemptions to protect investors during fraud investigations or when fund managers can't accurately calculate the fund's NAV. These powers exist to prevent investor losses caused by inaccurate pricing or system failures.

Tips to access cash from your fund faster

A few simple actions can help you receive redemption proceeds sooner and maintain cash flow when you need it. These approaches can shorten settlement time, reduce uncertainty, and help you plan around predictable cash needs:

Keep your liquidity flowing with Ramp

Liquidity isn’t just about having cash; it’s about knowing where it is and how fast you can access it. Ramp's all-in-one finance operations platform gives you real-time visibility into all your spending, so you can manage cash flow proactively instead of responding to issues once they happen.

Try an interactive demo to see how Ramp gives your team gets the clarity to forecast confidently and the control to act fast when opportunities or risks arise.