Savings accounts are not for investment, it is only ensures that your money is liquid means easily available whenever you required with a very low interest or no interest in many cases. Most of the people doing same with their excess fund available, saving in savings accounts and can not beat the inflation. You can ask yourself whether it is best for your money or not. If not then “Is there a better way to deal with excess cash?” in your mind.
Liquid funds can be an option for an even better utilization of your surplus funds or parking your emergency fund as the best alternative to saving account.
Your hard-earned money parked at any savings bank account earns a very low rate of interest. Savings account in different banks in India offers interest rates varying from 2%-4%. On average, most banks offer 2%-3% and the same would be used throughout the article for comparison. There are some banks which offer a high-interest rate of up to 6%. But these banks usually have a high minimum balance that you have to maintain.
What are Liquid Funds?
Liquid Funds are debt mutual funds that invest in very short-term market instruments with low-risk with a maturity of up to 91 days.. The returns given by them are slightly higher than savings bank account. Liquid funds help you to earn a higher rate of interest as compared to savings bank investment with liquidity (better than FDs), that too with considerably low risk. If talking about liquidity then liquid Mutual Funds are better than FDs because of their no lock in period.
Benefits of liquid funds.
1. No lock-in period:
Liquid funds do not any lock-in period.
2. Easy redemption(very liquid):
Redeeming liquid funds is very easy and the money will be credited in 1-2 days in the individual’s bank account. While other mutual funds can take anywhere between 3-4 working days to invest and redeem money, liquid funds take around 1-2 working days.
3. Better returns than a savings account and FD:
You can expect a return of 5%-6% from liquid funds per annum which is better than savings bank interest and return from FDs. Also, the returns post inflation from liquid funds is higher than from a savings account and FD.
4. No minimum balance:
In savings bank account you have to maintain a minimum balance to get interest. But with liquid funds, there is no limit on minimum or maximum investment.
5. Variety of plans:
There are plenty of plans available for different time periods like daily, weekly, monthly, dividend and growth plans in liquid funds. You can choose any plan based on your financial goals.
It is very clear from these benefits that investing in liquid funds is very beneficial than leaving the money idle in a savings bank account and fixed deposits.