Compare between Liquid Funds Vs Fixed Deposits
Liquid funds and fixed deposits are two of the most popular investment options that are considered to be safe.
Latest Update
RBI has announced a new rule applicable to unclaimed, matured FD
accounts. That is the funds in an unclaimed, matured FD account will
attract an interest rate as applicable to the savings account or the
contracted rate of the matured FD, whichever is lower.
What are Liquid Funds?
Liquid funds are a class of debt funds that invest in short-term
assured interest providing money market instruments such as treasury
bills, commercial papers, high-rated corporate and government bonds. The
instruments that liquid funds invest mature within a timeframe of
ninety-one days.
The main objective of liquid funds is to provide safety in the form
of capital preservation. It is for this reason that these funds invest
in high-rated money market instruments. Hence, liquid funds are
considered to be relatively safer than any other class of mutual funds.
Who Should Invest in Liquid Funds?
As liquid funds are relatively safer than other mutual funds, investors
who are risk-averse and looking to park their idle or surplus cash may
consider investing in liquid funds. These funds are an excellent option
when compared to a regular savings bank account as liquid funds offer
much higher returns than the latter. One may consider investing their
incentives, bonuses, or any other gains that have resulted due to
selling the securities or assets that they hold.
What are Fixed Deposits?
Fixed deposits are a popular form of bank deposits. Under this,
individuals deposit a lump sum over a fixed period of time to earn much
higher interest than what regular savings accounts provide. All banks
and some financial companies offer fixed deposits.
One may opt to receive interest on a periodic basis or receive the
interest accrued at the end of the tenure of the fixed deposit. The
investors can choose to invest in fixed deposits if they are ready to
compromise on receiving a fixed rate of return.
Who Should Invest in Fixed Deposits?
Fixed deposits are suitable for those who are not ready to bear any risk
with their investments. As fixed deposits are offered by banks, they
will always be under the purview of the Reserve Bank of India. However,
if one is investing in fixed deposits offered by an NBFC, then it is
essential to check ratings such as CRISIL rating to ensure that they are
safe. Investing in fixed deposits is an excellent option if one is
looking for long-term investment options.
Comparison of Liquid Funds With Fixed Deposits
| Parameter | Liquid Funds | Fixed Deposits |
| Returns | Slightly higher | Lower |
| Suitability | Both short-term and long-term investors | Long-term investors |
| Risk | Medium | Low |
| Premature withdrawals | Yes (with low penalties) | Yes (with higher penalties) |
| Minimum investment | Low | Very high |
Conclusion
Both liquid funds and fixed deposits are excellent risk-averse
investment options. Investors must assess investment horizon before
choosing to invest in any.
For more information on this, visit TAXAJ
Posted by Aashima
Team TaxaJ
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