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Is Investing in Liquid Funds better than Fixed Deposit

Difference between Liquid Funds and Fixed Deposit



As everyone will be looking where to invest surplus funds for the short term, in this article we will explain why investing in liquid funds will be better than a Fixed deposit. Selection between Liquid funds and Fixed deposit is somewhat tricky as both have advantages over each other.

Also leaving your idle funds in the savings bank account is not a viable option as it gives interest rates around 3.5 % which will be not beneficial to you.

Topics covered in this article
1.           What are liquid mutual funds?
2.           What is a Fixed deposit?
3.           Difference between liquid funds and fixed deposit
4.           Final thought.

There was a time when FDs was the best option to earn interest and for growing money over time but as the mutual funds rise many investors shifted to liquid funds to achieve better returns and for short term investment.

If you are new to investing in mutual funds then you can start with Liquid Funds as they are less volatile and with low risk associated.


What is Fixed Deposit ?


A fixed deposit is a type of term deposit and secure investment that is offered by banks and financial institutions.it will be fetching a fixed interest rate over a time. It is the safest investment offering good returns

For more details regarding visit the link Fixed Deposit

What are Liquid Funds?


Liquid Mutual funds are a type of open-ended debt mutual funds that invest in debt and money market securities such as treasury bills, certificates of deposit, commercial papers, and government securities. These securities have a maximum maturity period of 91 days so, liquid funds are considered as low-risk investment products. most top-performing liquid funds have provided an average return of 7 %. 



Difference between Liquid funds and Fixed deposit


Liquid funds are least risky among Debt Mutual funds and have the potential to offer more return than fixed deposit.

Investment way

            In liquid funds you can invest in either SIP or one-time lump sum.
            In a Fixed deposit investment can be done only in lump sum.

Lock in duration

            Liquid mutual funds have no lock-in period.
            Fixed deposit has a lock-in period as the amount can be withdrawn only after maturity.

Average Returns

Liquid Funds provide a golden opportunity to invest idle money earning higher interest than in a Fixed Deposit. Considering the average returns of liquid funds for one year will be better than FDs
            Investing in Liquid funds may deliver around 6 to 8 percent.
            If you are investing in Fixed deposit it will fetch around 5 to 7 percent
Also investing in Direct plan of liquid mutual fund the expense ratio will be very minimal

Taxation 

The interest earn on both liquid funds and fixed deposit are taxable.
            Investing in liquid funds will be entitled to avail tax indexation as it helps to lower their burden on various tax expenses. Long term capital gains if held for three years or more in liquid funds are taxable at 20 percent with the indexation benefit
            The interest earned in Fixed deposit will be according to their tax slab and also if the returns are more than Rs 40,000 in a finical year, TDS will be deducted at the rate of 10 percent,
So, there are more tax benefits in liquid funds investment

2020 Best 10 Liquid funds

Below are the top-performing liquid funds with their fund size and returns past 1 year

Final thought


Concluding the difference between the liquid fund and FD we can say that liquid funds are better than fixed deposits due to liquid funds are having more benefits due to high liquidity, tax benefit, and short-term investment. Liquid Funds may be the best to invest for short term

Considering the investment market, time horizon, financial goals, and your risk appetite before investing in liquid funds and fixed deposit

So, having more benefit from liquid funds, we can conclude that liquid funds are better than fixed deposit

Also, you will be wondering Are Liquid Mutual Funds safe?  There is no guaranteed investment as there will be low risk associated with liquid funds such as Credit Risk and Risk of default as Mutual Funds are subjected to market risks.


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