We all have savings account to store our cash and meet daily expenditure. That money cannot be locked in for any time frame.
But only a few of you know a better alternative to savings bank account – Liquid funds. Liquid funds not just provide the same convenience as savings bank accounts, but much better returns.
1. Returns – More remunerative than saving bank account
Your hard-earned money parked at any savings bank account yields a very low rate of interest to you.
This interest is generally to the tune of 3.5%. There are some banks that offer a high-interest rate of up to 6%. But these banks usually have a high minimum balance that you have to maintain.
In comparison to the above, liquid fund schemes offer higher returns of around 5 – 7% p.a.
This comes without any strings attached in the form of minimum balance requirements or minimum investment duration.
Therefore, liquid funds provide higher returns as compared to liquid funds for a short investment duration.
Another analysis shows liquid funds have outperformed banks’ saving deposits throughout since 2000 (Chart 1).
2. Minimum Investment
Varies from fund house to fund house. Can be as low as Rs. 100/-
Redemption requests are processed within 24 hours.
The cut-off time on withdrawal from a liquid fund is generally 1 p.m. on business days. Hence if an investor places a redemption request by 1 p.m. on a business day, the funds will be credited to his/her bank account on the next business day by 10 a.m. Also, there are no charges or expenses on the withdrawal of funds.
On average, more than 80% of assets of a liquid fund are invested in the highest-rated papers (A1+), highlighting safety. Also, the fund manager reduces the risk by holding a well-diversified portfolio of securities across sectors and companies.
Most liquid funds have high exposure to the financial services sector particularly banks and financial institutions as they are considered safe.
Liquid fund returns are taxed just like income earned from a savings bank account – at the individual’s slab rate. Also, there is no TDS cut at the time of the withdrawal of funds.
Added advantage –
Some liquid funds (Reliance liquid fund, Reliance Ultra Short Duration Fund, Reliance Low Duration Fund and others) give an option to link your investments in mutual funds to a debit card – known as Reliance any time money card. Such cards can be used to either withdraw money from an ATM or to make purchases at a point of sales (PoS) counter (and hence, can be used just like savings account debit card)
There are no costs associated to issue the card.