Instead of letting your surplus cash sit idle in a savings account, consider investing in liquid funds, which typically offer higher returns. With savings account interest rates ranging from 3.5% to 4.25% p.a., liquid funds from HDFC Mutual Fund and others can provide an average return of around 6.5% annually, with quick liquidity and low risk.
What Are Liquid Funds?
Liquid funds are open-ended income schemes investing in short-term debt and money market instruments like treasury bills and government securities with a maturity of up to 91 days. These funds are highly liquid, and units are allotted based on the previous day’s Net Asset Value (NAV) if the application is received before the cut-off time. With withdrawals typically processed within one working day, liquid funds offer flexible, low-risk investments.
Benefits Over Savings Accounts
While savings accounts are insured up to Rs. 5 lakhs by DICGC, liquid funds allow for better returns and immediate access to your money. For example, if you have Rs. 80,000 parked in a savings account and need to make an upcoming payment, liquid funds can offer higher returns without locking your funds like fixed deposits.
Pros of Liquid Funds
- Higher returns than savings accounts (6.5% p.a. vs 3.5%-4% p.a.)
- Instant redemption for up to Rs. 50,000
- No lock-in period, with withdrawals processed within 24 hours
- Low management fees and no exit load after the 7th day
Cons
- No DICGC insurance for amounts exceeding Rs. 5 lakhs
- Slight risk involved, though generally low due to the nature of underlying securities
In conclusion, liquid funds from HDFC Mutual Fund are a smart choice for short-term investments, offering better returns and flexibility than traditional savings accounts. Always consult a financial advisor before making any investment decisions.
