Liquidity answers a very practical question: if you needed your money today, when would it reach your account? A liquid asset sells fast without a meaningful price concession; an illiquid one needs time or a discount — or both.
Funds have liquidity at two levels. First, the fund itself: open-ended funds set redemption days (daily or on set days weekly) and a payout period defined in their terms and conditions, while ETF and REIT units trade intraday but at a live market price that can drift from NAV.
Second, what the fund holds: a fund owning large, actively traded stocks can liquidate easily, while a private real estate fund may need months to sell a single asset. The rare cases of suspended redemptions typically happen when redemption requests outrun a fund's ability to liquidate holdings quickly.
Before investing, match a fund's liquidity to your horizon: money you may need within months does not belong in a slow-redemption fund, however tempting its expected return.