Liquid Funds vs Saving Account VS Short term FD

We are all Know Saving Account interest is very Low as 3.5% Annum for popular banks like SBI.

If we keep this amount in liquid funds we may get 7% inwards interest with the flexibility of withdrawal.

What are Liquid Funds?

These are Debt Mutual Funds. With a Short term objective (daily/weekly/monthly) up to 91 days.

. you can get returns according to Market Rates. also known as Money market funds

No Exit Load. (When compared to other mutual funds these sell within 1 year).

 

Account	Return/	Tax	Charges	Risk	Liquidity
Saving Account	3.5%	Added to income	NA		any time
Liquid Funds (MF)	7-9%	Added to income	expense ratio(2.25%)	Very low Credit & Interest*	any time
DEBT FUnds in Stock	7-9%	Added to income	Broker Fee (0.5+0.5 buy-sell)		Treats as Stock
Fixed Deposit (FD)	6.4	Added to income			lockin period
Recurring Deposit (RD)		Added to income			lockin period

 

Investment Type	Amount	Term	rate of return Annual	total amount	Tax & charges
Saving	100000	3 months	3.5	100,000+875	no tax up to 10k
FD	100000	3 months	5.75	100000 +1,425 1425 (added to GTI)	total interest added to taxable
Liquid funds	100000	3 months	7*	100000+1,750 1750+562=1188 173.7 (taxable add to GTI)	STCG 15% on return added to your gross taxable income 2.5% (your investment) for expense ratio 2.25% of 1 lakh 2,250/4= 562 for 3 months * (interest should be added )

*Note there is no tax exemption on the invested amount under section 80 C in the above case. but  5 years FD & ELSS helps you.

*Debt funds have some risk (interest rate risk, credit risk, etc.)  better returns than fixed deposits (FDs). But this is not guaranteed.

EX: SBI FD rate

1. 7-45 days @ 5.75%
2. 45-180 days 6.25%
3. 180-210 days 6.35%
4. 210-360 6.40%

liquid funds interest rate

Depends on market conditions mostly when FD interest rates are low, the Debt funds give you higher returns.

 

Other Investment Options at Low Risk

1. Savings account
2. Fixed Deposit
3. Certificates of deposit (NSC)
4. Treasury bills, notes, bonds  (by govt)
5. Corporate bonds
6. Dividend-paying stocks (market risk but low)

TIP: You can request an Overdraft Account Against FD.  repay with extra 1% of your fd rate.

 

Some Mutual Liquid funds

1. Aditya Birla Sun Life Liquid Regular Plan Growth
2. ICICI Prudential Liquid Fund Growth
3. Reliance Liquid Fund Growth
4. UTI Liquid Fund Cash Plan Regular Plan Growth
5. Axis Liquid Institutional GrowthKotak Liquid Fund Growth

 

Debt Funds: Deals with BOnds.

promissory notes (Commercial Paper)

certificate of Deposit (CD): Just like FD But the term is less

Treasury Bills (T-bills): By GOI Rate of interest Low.

A commodity market trades in the primary economic sector such as cocoa, fruit, and sugar. Hard commodities are mined, such as gold and oil.

 

NOTE: just for Illustration Purpose only, calculations & Market conditions & Your portfolio manipulate the situation.