Liquid Funds or Savings Account- Where to Park Money for High Returns?
Instant cash requirements are one of the most uncertain events that occur in everyone’s life somehow. Meeting those needs on an urgent basis requires liquid cash in hands, and this is the reason we put our money in the savings bank account which allows us to withdraw cash as and when required. Furthermore, they also yield interest at the rate of 4 to 6 percent on an annual basis which is added to our money. But have you ever tried opting for any alternative of savings accounts? Do you think putting surplus money in them is worthwhile? Well, let us explore the solutions of these queries here!
It’s quite essential for everyone to have some reserves in the form of cash so as to meet the uncertainties with ease. Everyone requires an emergency fund that could help them to handle the situation without getting into the burden of debts. We maintain such reserves in the form of bank savings account through which we withdraw the sum as per the requirement. But apart from owning a bank account to put the idle cash, one also has the option to select the liquid mutual funds for their investment portfolio. Yes, you heard it right, there is an alternative to a savings account, i.e., liquid funds, which can assist you in enhancing your credibility without compromising on the liquidity and various other benefits.
What are the Benefits of Liquid Funds?
Before knowing why liquid funds overcome savings bank account, we must know what they are. Liquid funds are a type of debt mutual funds which invest the money of investors in the short-term debt instruments which have maturity period up to 91 days. These schemes are open-ended in nature and provide a high degree of liquidity to the investors to redeem the funds even within 24 hours of investment. Accordingly, investors need not get worried about the availability of cash at the time of urgent need. Furthermore, there are several benefits of investing in liquid funds which include:
1. Higher returns ranging between 8 to 10 percent.
2. Greater efficiency to provide liquidity.
3. Tax savings for investment held for a longer period.
How Liquid Funds Overcome Savings Account?
While parking the hard-earned money into any investment stream, we first make sure that we are going to earn some exceptional returns and maximum benefits on them. Although the savings bank account provides several advantages to the investors like safety, interest, liquidity, etc., but when you can avail many more apart from these, then why not go for it!
Here are the two major factors due to which liquid funds are considered to be a better choice over savings account:
The liquid funds can yield considerably higher returns even if the market is highly fluctuating due to changes in the economy. The reason behind this is that the investments under this fund are made in the secure debt instruments for a short-term period, and hence they do not get affected by the market moves. The past performance proves that liquid funds have yielded up to 10% returns on investments and have helped many investors in gaining their short-term financial goals. On the other hand, savings account of banks yields annual returns of 4-6 percent which is further dependent on the bank you have chosen.
There are various provisions of the Income Tax Act which are related to investments and exemptions. The IT Department provides a deduction of up to Rs.10,000 for the interest earned on a savings account and the earning over and above it is taxable in the hands of the receiver.
While in the case of investments in the liquid funds, if the investing period is less than three years then the interest earned is termed to be short-term capital gain and is taxable under the individual tax slab of the assessee. But, in case the investing period is more than or equal to three years, the returns generated are considered to be the long-term capital gains and are separately taxable at the rate of 20%.
When analysed and evaluated in depth, it can be concluded that the tax benefits in the case of liquid funds are higher than that of savings bank account. Accordingly, liquid funds are the most preferred choice for every investor, and one must avail the benefits of the same to grab the best opportunity of generating good returns in the short run. You can avail our services at MySIPonline to make a worthwhile portfolio with our efficient team of fund analysts.