Savings account vs liquid funds
Don’t leave spare cash idle in savings accounts; invest in liquid funds to make your money work harder.
Saving accounts give you low returns but it’s likely you are reluctant to invest this money in higher-yield options in case you may need it in the near future. FDs may offer higher returns, but very low flexibility. But should the need for flexibility really force you to compromise on returns to an extent that you are forced to be content with a 4.5% interest rate when you could get 9%.
Liquid funds might just be the solution that you are looking for: an option that gives you liquidity (as the name suggests) but also good returns (top-rated liquid funds have returned between 9-9.5% in the last year). Most liquid funds do not have an exit load, so you can have your money with 2-3 working days from the point you decide to cash the funds. But what exactly is a liquid fund and how risky is it?
A liquid fund is a debt mutual fund that invests in short-term instruments such as commercial papers, treasury bills, certificates of deposit, etc. Liquid fund managers choose instruments that have a very high credit rating and most portfolios have a low average maturity period and hence have a very low risk. Also, as these instruments have very short tenures, they are not traded in the market, and instead held-to-maturity by the fund which eliminates volatility.
As far as risk goes, your capital is protected in most cases and liquid funds very rarely deliver capital losses. While there may be times when the net asset value (NAV) might slip a little, holding it for a while, in most cases, would reverse the trend.
All in all, as a relatively safe investment, liquid funds give much better returns than bank fixed deposits and it makes sense to keep your spare cash in liquid funds.
Here are the top 10 Liquid funds according to Value Research:
|Fund||Rating (out of 5)||Expense ratio (%)||1-year return (%)|
|Birla SL Floating Rate ST||5||–||9.38|
|BNP Paribas Overnight||5||0.44||9.24|
|ICICI Pru Money Market Reg||5||0.35||9.17|
|Mirae Asset Cash Management||5||0.26||8.2|
|Morgan Stanley Liquid Reg||5||0.08||9.4|
|Peerless Liquid Super Inst||5||0.02||9.51|
|SBI Magnum InstaCash||5||0.2||9.37|
|Templeton India TMA Super Inst||5||0.31||9.38|
|Union KBC Liquid||5||0.18||9.28|