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Liquid Funds Vs Savings Account: Are Liquid Funds a Sure Winner?

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Have surplus money at hand? If yes, then your biggest goal is to utilize it in the best possible manner. Now, the best way to utilize any surplus money is by investing it in some fund. Yes, you want high returns from your investment but you also want your money to be at your disposal whenever you want.

The first solution people consider in this regard is to park the money in a bank. People think there isn’t a more rational idea than this. Generally, when you sign up for a bank account, you are given two options to park your money - a savings bank account and a fixed deposit account.

While fixed deposits give higher returns with low liquidity, savings bank accounts offer higher liquidity with minimal returns. Now, the question that arise here is- is there no investment solution which is both liquid and profitable? The answer is yes, there is! And this investment solution is called liquid funds.

What are liquid funds?

Liquid funds are a kind of debt mutual funds, which stash the investor’s money in market securities for a short term. Hence, if you are interested in making Mutual Fund Investment, liquid funds can be a profitable option. Since the corpus remains invested in securities maturing within a very short period of time, the returns offered by such funds don’t fluctuate much. Besides, they are highly liquid.

Why savings bank accounts could be a turn-off?

Savings bank accounts offer great liquidity but the interest rates are poor. On the other hand, with liquid funds, you get returns as well as liquidity.

After RBI deregulated interest rates, banks began to set their own interest rates, often competitively to gain an edge over their competitors. Yes, this benefits most investors, but middle-sized investors don’t find it beneficial as they have to fulfil certain conditions to gain maximum returns. First condition - they need to have a certain minimum balance in their account. Second condition - they need to hold the account for a certain period of time.

Here is why liquid funds are a more profitable option -

If you are engaged in Investment Planning and are looking for a safer and more beneficial alternative to savings bank accounts, then liquid funds should be your option.

Liquid funds are a great way to keep your money protected as they are extremely safe. Besides, they offer higher liquidity than typical savings accounts do. When you invest in a liquid fund, redemption of the money becomes a breeze and you get an impressive return, somewhere within the range of 8-9%. In addition to this, liquid funds don’t impose any overwhelming conditions on the investor - there is no cap on the minimum amount or duration to invest your funds. You can make your investment according to the amount of money or duration you are comfortable with.

Hence, it may be inferred from the discussion that if you want the withdrawal option on your investment to be liquid, then liquid funds should be your choice, as they don’t just offer high returns but also impose lesser terms and conditions on the investor.

Mr. Ajay Kumar Jain, M.Sc, Chairman And Managing Director
Being the Chairman And Managing Director, he focuses on holistic investment planning and wealth management and tries to make investment planning simpler for retail and HNI investors. Investor education is one of the prime things that Mr. Ajay Jain focuses on as he believes financial education is the foundation of successful investing. With over two decades of experience, Mr. Jain has made a mark in the Indian mutual fund industry due to his compassion and sheer hard work.

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