Why keep in money on Saving Account when you can invest in Liquid funds and earn more interest. Know More

India is a country with a high saving rate. Many people specially retired ones are solely dependent on interest income to sustain. So interest rate is of big concern to such investors. When we keep money in bank, we can’t keep 100% in fixed deposits and we do need money under emergency circumstances. But with saving rate of just 4%, keeping money in saving account just won’t get any “real” return (when adjusted to inflation)

Liquid funds can handy for such investors (rather depositors) who don’t want to take equity risk by purchasing equity mutual funds but at same time want more returns for their hard earn money.

Liquid funds can provide better returns than a savings account and also can be easily liquidated. Liquid funds tend to be stable as compared to other debt funds and are a smarter alternative to fixed deposits.

So what Are Liquid Funds?

Liquid funds are form of debt mutual funds. Liquid Funds generally invest in short-term debt instruments such as treasury bills, commercial papers, FDs, and other debts with low maturity durations. The tenure of the underlying securities is typically up to 91 days. Liquid funds can be summarized as lowest risk mutual funds which have provided long-term returns ranging from 6-9% per annum in last few years. As such these funds can give you more bangs for your buck than plain old saving account.  

There is no exit load on liquid funds (FDs have penalty for early withdrawal), and the only charge is the total expense ratio which is very low. Also redemption takes one working day only

                                      

Tax Treatment

Liquid funds taxation is similar to that of fixed deposits. If the fund is held for more than three years, your gains will attract long term capital gain tax (LTCG) at the rate of 20% with indexation benefit. Note for a Fixed Deposit there is no indexation benefit. If liquid funds investments are redeemed within three years of investment, the investor has to pay short term capital gain (STCG) tax at the rate nominal tax slab.