Liquid Mutual Fund vs Savings Account

What is Savings Account?
A savings account is the basic banking product offered by the traditional banks to its individual customers. It has been the most preferred option to keep one’s savings or surplus funds or emergency fund as they are very safe and the access to the funds is very easy.

How is Savings Account safe and access to funds is very easy?
To answer this question, we would like to explain you about what happens to your money kept with a bank in your savings account:

  • Every bank has to follow certain guidelines in terms of managing their liquidity, i.e. making the money available to their account holder whenever required or matured.
  • Since the money kept by you in your savings account can be withdrawn by you at any point of time, the banks has to make sure that your money is invested or is given as a loan to highly liquid and safest instruments like RBI issued Treasury Bills, Top rated Commercial Papers, etc.
  • These highly liquid investments are also made by these banks to meet various regulatory requirements of maintaining Liquidity and Cash Reserve Ratios.

However, savings bank accounts are not efficient enough from the investment point of view, as the rate of return is meagre. Now, you may have this “Is there a better a better way to deal with surplus cash?” in your mind. The answer is yes!

‘Liquid Mutual Funds’ have evolved as a best alternative to your Savings Account. These funds are one of the most convenient ways to earn better returns as compared to a savings bank account and you get the liquidity of a savings account. Let’s have an in-depth look at liquid funds.

What is a Liquid Mutual Fund?

  • Liquid Mutual Fund is a sub-category of Debt Mutual Fund and hence the focus here will be to generate fixed return
  • As the name suggests these funds focus on liquidity and the investment objective is to preserve capital and offer liquidity, i.e. easy access to the funds and safety which is the feature of bank savings account as well
  • The underlying instrument will be those instruments giving high liquidity and safety like RBI issued Treasury Bills, Top rated Commercial Papers, Fixed Deposits, etc
  • Since the liquid mutual fund should maintain the liquidity, the instruments in which the investments are made are very short term, i.e. upto 91 days
  • Your money is invested through a liquid mutual fund shall not get effected by the daily volatility of equity market (Stock Market) and provide you with an interest income of upto 5.5% per annum

Is it 100% safe?

  • Your investment in Liquid Mutual Funds do come with a disclaimer of “Mutual Fund investments are subject to market risks” but Liquid Mutual Funds are considered as the least risky investment in the entire spectrum of Mutual Funds
  • The only way there could be an erosion of capital is when the defaults are made by the borrower but in case of liquid mutual funds the investments are made in RBI issued Treasury Bills, Top rated Commercial Papers, Fixed Deposits, etc. maturing in 91 days, the chances of default becomes very less
  • Liquid Mutual Funds provide a stable return throughout your investment period which is close to the Repo Rate announced by RBI

Can I any time withdrawn the investment made to a liquid mutual fund?
Few liquid mutual funds comes with a feature of instant withdrawal of funds to your bank account where you can instantly withdraw upto INR 50,000.00 or 90% of the total funds (whichever is less) and the balance shall be credited on the next business day.

The investments made to a liquid mutual fund will be available for you to withdraw after 1-2 days based on the time you have made the investment.

Our Smart Savings Account is a digital banking solution built on top of your existing bank account and Liquid Mutual Fund for all your personal banking needs loaded with features of your regular bank account. You can add money to this account from your bank or ask your employer to transfer your salary directly to this account and start using it for bill payments, funds transfer and investments.

Plus you shall be able to manage your expenses like a pro, get tailor made offers from our business partners and earn upto 100% more interest than your regular bank account.

It is the smartest way of banking trusted by our smartest customers.

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