Mar 31, 2017 3 min read

Why Your Savings Need a Liquid Mutual Fund?

If you have surplus money and you want to save it in a better way, then liquid funds can be the best alternative. Here’s how!
It’s never too late to boost your savings. The best day to enhance your savings amount is today itself irrespective of how the market is performing and what is going in the world. The unplanned expenses cannot be predicted, and this is the reason that the sooner you're prepared, the better off you'll be when the inevitable instance happens. So here we have provided you with the explanation that why savings and liquid funds are correlated and how they help you in managing your emergency fund’s requirement.

Though everyone has a bank account, it isn’t mandatory that we put all our idle money in them. There are some other alternatives as well which works almost similar to the bank accounts and provide a higher earnings as well. They are not only safe as the bank account but provide the same level of liquidity. You might have a doubt in mind regarding the same, but Liquid Mutual Fund is what we are talking about here. It provides numerous benefits to the investors in the short-term period beating the bank’s savings account. Here are the reasons why liquid funds must be there in one’s investment portfolio.

Higher Returns

We all know that our money that lies in the savings bank account fetches an interest at the rate of 4% per annum which is the common interest rate in most banks. There are some banks which tend to provide interest at the rate of 6% as well. But you would be surprised with the average returns offered by the liquid mutual funds to be 7-8%. Moreover, there have been some funds which have offered returns at the rate of 10%. Accordingly, this factor makes liquid funds overcome the savings account.

The returns on the liquid funds investments do not vary much as they invest in similar underlying instruments. Furthermore, the investment tenure in these funds are very less, i.e., up to 91 days, due to which they do not get affected by the market moves.

Emergency Planning

Every financial planner recommends the investors to maintain a contingency fund. This fund is built for the purpose of overcoming the uncertain situations which take place unexpectedly. The liquid funds are highly recommended for the purpose of building an emergency fund for the investors.

Many a time it has been observed that investors park their money in the equity funds via SIP and then at the time of emergency redeem their capital which eventually which breaks the entire investment value. Thus, one must make an investment in the liquid schemes to let their savings earn good returns to be used in uncertain times without bearing any loss.

Taxation Benefit

Liquid Funds provide the advantage of tax-efficient returns as well when compared to savings bank account. The long-term capital gains are taxable at the rate of 20% after indexation, while in the case of short-term capital gains, the profits are added to your total taxable income and taxed at the normal rate applicable to you. Accordingly, this tax structure renders a substantial benefit to those in the higher tax bracket.

One can also plan the taxes on the income earned on liquid funds. Here’s how-
If you fall in the high-tax bracket of 30%, you can opt for the dividend payout or daily dividend reinvestment plan. With this, your capital gains will be reduced or nullified. And in case you are in the lower tax bracket, you can take the growth option since the tax rate is less thereon.

It is our responsibility to give the best value to our money so that it can work better for our future financial requirements. The advantages of liquid mutual fund investment plans are commendable making them a must-have fund for one’s portfolio.

If you want to invest in liquid funds online, MySIPonline can be the best platform for you. Here, we provide you with the exceptional investment solutions to help investors make wise investments quickly.