Liquid funds vs savings account: Who wins the battle of better | Credclub
Liquid funds vs savings account: Who wins the battle of better returns?
Liquid funds are debt mutual funds that deliberately have a small investment time frame. They aim to safeguard your capital while offering liquidity. These funds invest in premium debt instruments which include government-issued treasury bills (essentially debt guaranteed by the government) or commercial papers (debt raised by blue-chip companies with stellar performance) or certificate of deposits (term deposits offered by banks). All in all, liquids funds make for low risk, low return instruments.
Liquid funds offer more bang for the buck as your funds earn 7-8% compared to your savings account which pays 4-5%. But liquid funds are subject to capital gains taxation, while savings interest is exempt upto INR 10,000.
When it comes to risk, liquid funds have low risk but they still carry risk. The company in whose commercial paper your liquid fund manager has invested may suddenly go broke tomorrow.
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