Certainly, almost all of us have a savings account to store our cash and fulfil all our expenditures. Among them, very few know that there are other ways to park idle cash and earn better returns than a savings account. Liquid Funds are one of those options. Liquid funds are debt mutual fund that invest in liquid assets for a shorter duration of time. While Savings account is a bank account that works as a liquid fund but offers fixed returns on your savings. Liquid funds not only keep your money available like a savings account but also offer better returns than them. We have mentioned a few features to determine which is better- liquid funds vs savings account. Have a look!
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Based on certain parameters, we can figure out the difference between liquid funds and savings account.
Let’s figure out those parameters.
|Factors||Liquid Funds||Savings Account|
|Rate of Return||7-8%||4%|
|Tax Implications||Short-term capital gains tax is levied based on investors' applicable Income Tax slab tax rate||Interest rate earned are taxable as per investors' applicable income tax slab|
|Ease of Operation||No need to go to a bank to get cash. If there is same amount that needs to be paid, it can be done online||Money gets deposited to the bank account first|
|Suitable for||Who want to invest their surplus to earn higher return than saving account||Who want to just park their surplus amount|Fund NAV Net Assets (Cr) 1 MO (%) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) 2017 (%) DHFL Pramerica Insta Cash Fund Growth ₹238.505
₹3,360 0.6 1.9 3.8 7.5 7.3 7.8 7.4 JM Liquid Fund Growth ₹50.2257
₹2,277 0.6 1.9 3.8 7.5 7.3 7.9 7.4 Indiabulls Liquid Fund Growth ₹1,788.93
₹2,088 0.6 1.8 3.7 7.3 7.3 7.9 7.3 Principal Cash Management Fund Growth ₹1,633.62
₹390 0.6 1.7 -5.2 -1.8 4.1 5.9 -1.8 Baroda Pioneer Liquid Fund Growth ₹2,109.22
₹7,102 0.6 1.9 3.8 7.5 7.3 7.9 7.5 Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 18 Jan 19
Investing in Liquid Funds is easy and convenient. One can invest in these funds through online banking instruments like mobile apps or online websites. But, to deposit money in a savings account it is mandatory to visit the bank.
The taxation applicable on Liquid Funds is short-term capital gains tax, that is calculated based on the tax slab of the investor. While on a savings account, the returns are taxed as per the investor’s tax slab.
Liquid funds are suitable for the ones who want to earn better returns than a savings account and want their cash available as well. While savings account is suitable for people who just want to park them money for storage purpose.
So, you must be having a detailed understanding of savings account, best savings rates, and liquid funds, and how the returns of both these investing instruments vary. Though, the decision to choose between liquid funds and a savings account totally depends on the investor, however, it is advised to invest in higher returns yielding Liquid Funds. invest smart, earn better!
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