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deposit has a lock-in period as the amount can be withdrawn only after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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