Are liquid funds a good option as bank saving interest rates drop?
Liquid funds provide average returns of 7-8%, which is higher than what even many fixed deposits today provide.
Highlights
- Liquid funds are a type of mutual funds
- They offer higher interest rate than your savings bank account
- The money can be withdrawn within a day in case of an emergency
Interest rates of savings bank accounts may be dropping because of banks in India are flush with deposits on the back of demonetisation. However, there is an option of investing in liquid funds to keep your money earning a good rate of return while being 'liquid' at the same time.
What are liquid funds
Liquid funds are short-term debt mutual funds where an investor has the option to park one's fund for few days or months and earn returns for the holding period as per market rates. Liquid funds provide average returns of 7-8%, which is higher than what even many FDs today provide.
ALSO READ: Job Cuts: Prepare for the worst with an Emergency Fund
Liquid funds are invested in short-term money market instruments such as Government treasury bills, money markets, short term corporate deposits, commercial papers, etc. This makes them very liquid and safe. Moreover, there is no exit load applicable for such a fund.
Ajit Narasimhan, Head - Savings and Investments, Bankbazaar.com, said, "Today, most people maintain our contingency fund in a savings bank account or a fixed deposit. Either of these are easily accessible and can be liquidated when needed. However, keeping this money in a liquid fund instead will provide you higher returns compared with a savings account. Moreover, liquid funds also provide good liquidity of as little as a day."
How can you redeem the money?
To redeem your money, all you have to do is to place a redemption request and the accumulated money accumulated gets credited to your bank account the very next working day.
There is also the convenience associated with investing in liquid funds. It is possible to invest in liquid funds completely online without any offline paperwork or wet signatures.
ALSO READ: Got an appraisal already? Use that extra income to secure your future
You can compare the different funds and choose the one you think suits you the best. You can fill in and submit the application form online. The entire verification is eKYC-based, and happens within a matter of minutes once you approve, as explained by Narasimhan.
Basis your approval, money can be transferred to the fund from your bank account, and your liquid fund is set up in a matter of minutes.
Hence, start keeping your money in liquid funds and earn better interest than savings account.
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.
RECOMMENDED STORIES
PM Modi has invested in this post office scheme; know his total worth as per Lok Sabha elections 2024 affidavit
SRH vs GT IPL 2024 Ticket Booking Online: Where and how to buy SRH vs GT tickets online - Check IPL Match 66 ticket price, other details
Top 7 SWP Mutual Funds: Rs 50 lakh investment, Rs 70K monthly pension for 10 years, and Rs 42.30 lakh balance value; know more details
Gold and Silver rate today (May 13, 2024): Precious metal under pressure; yellow metal near Rs 72,400, white metal above Rs 84,600
SIP Returns: How Rs 3,000, 5,000, and Rs 10,000 SIPs can help you build retirement corpus of Rs 1.06 cr, Rs 1.77 cr, and Rs 3.53 cr
TBO Tek IPO Listing LIVE Update: Bumper Debut! Share list at 55% premium - Buy, sell or hold? Check Anil Singhvi's view
02:49 PM IST