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What's better: Liquid fund or Fixed Deposit?

We are always keen to get higher returns on our investments. However, many times, we end up parking our money in the fixed deposit accounts. Have you given a thought, that investment done in a liquid fund can help you in fetching high returns compared to fixed deposits?  Thus, you can select the liquid funds as an investment option and make the most of these funds.

Liquid Funds are simply debt mutual funds.  Whereas, fixed deposit is the instrument where the investor will get higher interest than the regular savings account until it comes to the maturity date.

These funds have left saving banks and fixed deposits behind. It has become one of the popular and is considered as the alternative mode of the investment.

So, have a look at these parameters which help you in identifying that exactly which one is better- liquid fund or fixed deposit?

Interest rate

The Liquid Funds have a pretty low-interest rate as compared to FDs. Liquid Funds is mostly invested in government securities for short maturity. On the contrary, fixed deposits have pretty good interest rates as compared to the liquid fund. The interest rate is around 6-8%.

Returns

Liquid Funds allow investors to earn and demand returns on the same day, i.e., you can withdraw money from these funds within minutes. You are allowed to withdraw up to Rs, 50,000 instantly.

On the other hand, the investor will get a fixed interest on FDs predetermined by the banks. In case of returns, it is quite tedious as it has got lock-in period.

Risk

The daily price movement of the liquid NAVs is very low due to the due to its assets hence it is less risky. The underlying securities are market linked so the returns are not assured like a liquid fund.

Penalty

Due to its nature, the liquid funds are a value proposition. Even if you withdraw money before the maturity age you won’t be penalized. On the other hand, bank penalizes you for redemption before maturity. If a bank undergoes insolvency the FDs are indemnified only up to Rs. 1Lakh.

Dividend Distribution Tax

The dividend distribution tax for liquid funds investor is 28.84% where for FD investor it is 30%. The earnings which are received through the dividends are completely tax-free. This is where liquid funds have an upper hand over the fixed deposit. The interest earned on FD is taxable. An FD investor has pay tax even before he or she receives interest amount whereas the people investing in liquid funds have to pay tax after receiving the gains or bookings.

So, with these tax benefits and the interest rates it is seen that liquid funds are anytime more reliable and also proved as beneficial for the investors as compared to the other investment options like fixed deposits and savings accounts. In addition to this, it has been seen that liquidity plays an important role in situations like where there is a sudden rise in the expenditures. Then, here the liquidity margin can be helpful.

So, If you are looking to invest in liquid funds then Axis liquid fund is always an option for you. All you have to mobilize your fund neatly so you can have maximum profit.

Post Author: Amrina

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