Dec 26, 2016 3 min read

Liquid Funds v/s Savings Bank Account - Which One Should You Opt?

Know which one between Liquid Funds and Savings Bank Account is a better option to invest in you are targeting for higher returns in the future

With financial changes which occur every now and then, many investment options have emerged in the industry in the form of Fixed deposits (FDs), SIPs, Savings Bank Account and a plethora of others. And therefore, here comes the need to choose the option which would suit you the best. In this blog, we have discussed two of the commonly used investment options namely, Liquid Funds and Saving Bank Account.

People who usually follow the traditional way of investing, i.e., through Savings Bank Account, should rather start considering Liquid Funds as an alternative as these ensure higher returns and ease of convenience. Moreover, this type of fund is an open-ended debt scheme which invests in short-term money market instruments such as treasury bills, etc. Here, an investor has the option to hold one's fund for few days or months and earn returns for that period as per the current market rates. Not only this, exit load is not applicable for Liquid Funds. Investors can choose from the multiple variants like Daily Dividend, Weekly/Monthly Dividend and Growth Option in case of this fund.

Understanding the Comparison Between Savings Account and Liquid Funds

Liquid Funds are generally managed by expert fund managers who actively manage your portfolio based on interest rate movements. Furthermore, below are some of the areas on which we have compared Saving Account with the Liquid Funds. Read further to get a comprehensive overview on both of them:

  • Return Rates: The first thing which usually drops in the head regarding investments is the rate at which the returns will be generated. When it comes to the savings bank account, the usual rate of return is 3 to 4 percent though there are cases where some banks offer a higher rate that is substantially varies for deposits that are more than Rs 1 lakh. For those investors who have some additional cash lying with them in the savings bank account, making use of the higher rates of interest might not happen efficiently, and hence this is something that needs to be taken into consideration. On the other hand, the size of the investment is not the determining factor in the case of liquid mutual funds as the ones who have invested in them will get the same rate of return no matter what is the amount that they have invested. Moreover, the returns generated on liquid funds are around 7 to 9 percent. However, one thing that the investor needs to take into account while investing in liquid funds is that there is quite some uncertainty about the return that will be earned here. It could vary and hence this is something that might cause some concern for those who want to be sure of what they earn.
  • Convenience: With technological advancements, making online transactions have become much easier, and thus the investors can manage their cash through online banking in the case of Savings Bank Account. While with Liquid Funds, money can be transacted quickly but a bit slower than Saving Bank Account. But, at the end of the day, it is all worth it as you are excepting higher returns.
  • Tax Efficiency: Liquid Funds also have another advantage over the savings bank account in the form of tax-efficient returns. Here, the long-term capital gains are taxed at 20% after indexation, and short-term capital gains are automatically added to your income and taxed at the normal rate applicable to you. For the investors who are in the high tax bracket, Liquid Funds can generate significant returns.

The fund analysts associated with MySIPonline recommend you to invest in Liquid Funds through their extensive experience on market research and analysis. Moreover, you can consult them by registering with us to increase your knowledge on the best investment options in which you can park your money to fetch great returns in the coming time.