लिक्विड निधि बनाम सावधि जमा

The growth of the Mutual Funds in India has created its edge in the personal finance industry in India and has opened up opportunities for investors to diversify their investments across various asset classes. Mutual fund is a type of financial intermediary product that empowers millions of small as well as large investors across the country to participate and invest in capital market and derive benefits from the same.

Liquid Funds, as the name suggests, invest predominantly in highly liquid money market instruments and debt securities of very short tenure of up to 91 days to generate optimal returns while maintaining safety and high liquidity. The aim of the fund manager of a Liquid Fund is to invest only into liquid investments with good credit rating with very low possibility of a default. The returns typically take the back seat as protection of capital remains of utmost importance. Control over expenses in the form of low expense ratio, good overall credit quality of the portfolio and a disciplined approach to investing are some of the key ingredients of a good liquid fund.

This category of Mutual Funds are relevant for Conservative investors are again gaining interest after a lean period where the returns on these products were tepid. In comparison, Bank Fixed Deposits represent a great saving avenue for the Conservative investor on account of predictability of returns, lower credit or default risks and limited impact of market dynamics including interest rate movements.

Liquid Funds vs. Fixed Deposits

What are Liquid Funds?

Most retail customers prefer to keep their surplus cash in Savings Bank deposits as they consider the same to be safest and they could withdraw the money at any time. Liquid Funds and Money Market Mutual Funds provide a more attractive option. Surplus cash invested in money market mutual funds earns higher post-tax returns with a reasonable degree of safety of the principal invested and liquidity.

Liquid funds are preferred by investors to park their money for short periods of time typically 1 day to 3 months. Wealth managers suggest liquid funds as an ideal parking ground when you have a sudden influx of cash, which could be a bonus, sale of real estate and so on and you are undecided about where to deploy that money. Investors looking out for opportunities in equities and long-term fixed income instruments can also park their money in the liquid funds in the meantime. Many equity investors use liquid funds to stagger their investments into equity mutual funds using the Systematic Transfer Plan (STP), as they believe this method could yield higher returns.

Liquid Funds typically do not charge any exit loads. Investors are offered growth and dividend options. Within dividend option, investors can choose daily, weekly or monthly dividends depending on their investment horizon and investment amount. Redemption payment is typically made within one working day of placing the redemption request. With mutual funds going online, individual investors with small sums can look at Liquid funds as an effective short-term investment option over their savings bank account but keeping in mind that like all Mutual Funds, Liquid Funds are also subject to Market risks.

What are Fixed Deposits?

Fixed Deposits are smart investment options which usually exist in all customer portfolios, on account of a fixed / predictable rate of return that they can offer. These are investment plans again relevant for a conservative investor who has a limited/low-risk appetite.. So how do Fixed deposits work? You put a lump sum amount to a fixed deposit account in your bank and watch the sum compound into healthy returns. Fixed deposits are offered by both non-banking financial companies as well as banks. You can choose fixed deposits that offer periodical interests or interests on maturity. Remember that premature withdrawal is not accepted kindly by the bank / NBFC and the investor is penalised for the same thereby impacting their investment returns.

So, what are the features of Fixed Deposits?

You can trust fixed deposits as the most dependable place for parking funds. They are secure investments that remain safe till the end of maturity and are not exposed to market fluctuations and risks.

Fixed deposits have flexible tenures from 7 days to 10 years. All you need to do is keep a watch on the rate of interest that the FD will fetch which is related to the period of deposit and the amount invested.

What are Fixed Deposits advantages?

People in India have immense faith in Fixed Deposits as this is the safest way to make small yet steady growth on savings. The assured return is the greatest incentive which makes this financial instrument so popular. The added interest to the principal sum makes almost every household invest in more than one FD in their lifetime.

Another advantage is FDs allow you to top-up loans. If you have fallen short of funds and are in dire need your FD account offers security against a bank loan.

Also, Senior citizens can receive a high rate of interest on their FD accounts and owing to their assured returns, find favour with this class of investors

As discussed earlier, FDs that are cumulative allow you to get monthly and quarterly interest and non-cumulative accounts allow withdrawal upon maturity.

What are disadvantages associated with Fixed Deposits?

These are locked funds with withdrawal penalties, thus the liquidity of these products is limited. Also, the rate of interest on FDs may sometimes be lower than inflation thereby earning a negative return for the investor. But they are still better than parking money in the Savings Accounts and it's safer to invest in FDs.

Who Should Invest in Liquid Funds?

If you are looking for a higher return than a bank's Saving Accounts, if you have some extra cash then it is safe to invest in liquid funds. You can also park your emergency funds in liquid funds if the product underlines safety along with liquidity on returns. An investor should not commit to equity funds without adequate knowledge and never hold emergency funds in them as these are susceptible to market risks and volatility. Liquid funds hold secured government and quasi-government debt papers, treasury bills, and PSUs. You should evaluate the Liquid fund’s portfolio holdings, average maturity, the Yield-To-Maturity (YTM) and Modified Duration (MD), along with management of assets and the scheme's expense ratio to identify the Mutual Fund best suited to your requirements.

Who Should Invest in a Fixed Deposit?

With the RBI hiking policy rates, fixed income investors can now gain even more from Fixed Deposits which is expected to outpace inflation. Bank of Baroda is offering one of the most competitive interest rates on Fixed deposits maturing in 3-10 years for both general and senior citizens. Locked Fixed deposits are the best instruments for outperforming the growing inflation rate and bring in handsome savings for the smart investor.

Taxation

Fixed deposits are subject to income tax deductions. The tax reduction is dependent on the IT slab rate of the investor. If the Fixed deposit is earning more than Rs. 10,000, then TDS (tax deducted at source) will be 10%. Without PAN card details, the TDS will be 20%. However, the exemption can be claimed if the total income is under the tax slab of a minimum of 10%. If your income is more than the 10% slab rate, you will need to pay extra tax along with the standard TDS. A 15G or 15GH form can help you avoid tax deductions.

Taxation of liquid funds is also applicable, being a debt fund it is liable to long term capital gain tax if the period of investment exceeds three years and if the tenure of investment is lesser than three years, the gains are taxed as per the tax slab of the investor. Long Term Capital Gain (LTCG) at a rate of 20% with indexation benefits is levied on the gains.

Conclusion

So, when it comes to liquid funds vs fixed deposits, you can see clearly that both have their set of advantages and disadvantages. Liquid funds can provide a highly liquid and accessible investment alternate to investors while at the same time conservative HNI investors can benefit from LTCG benefits especially if the investment tenures are higher. At the same time, FDs have the ability to offer stable and predictable returns for small as well as HNI investors. Financial investments are based on individual priorities. Set your goals and park your finances in the best financial option that works for you and a portfolio which entails both FD’s as well as liquid funds based on your goals and investment horizon may be best positioned for your benefit.