Liquid funds, a popular choice for corporates to invest their short-term cash, are facing hefty outflows as the Reserve Bank of India (RBI) tightens liquidity conditions. The Association of Mutual Funds in India (AMFI) reported that liquid funds saw net outflows of ₹74,176 crore in September, the highest among debt oriented schemes. Furthermore, the overall net outflow for debt schemes in September amounted to ₹1.01 trillion. The outflows in liquid funds are typical during the September quarter due to bank money being redeemed for the half-yearly close. It is mandatory for banks invested in liquid funds to maintain higher levels of capital. However, the inflows in October may not be sufficient to compensate for the outflows in September as the banking system liquidity has tightened and is now in a marginal deficit. The RBI governor has indicated that some banks possess surplus liquidity while others have a permanent negative liquidity. Liquid funds are a type of debt mutual funds that invest in highly liquid money market securities such as Treasury Bills, commercial papers, and certificates of deposits. The Net Asset Value (NAV) of liquid funds is computed for 365 days. The NAV of debt mutual funds declines as bond yields increase due to the inverse relationship between bond prices and yields. Yields on T-bills, and rates on certificates of deposits and commercial papers, have risen significantly since August as the RBI has implemented measures to reduce excess liquidity in the banking system.